Investors are proving resilient on the heels of last week’s global market correction, buying on the dip and pushing U.S. stocks higher for the best two-day gain since Brexit.
The equity rebound comes despite a rise in the U.S. 10-year yield to a fresh four-year high as President Donald Trump sent a request to Congress for $200 billion to support a $1.5 trillion infrastructure plan.
The bulls are finding comfort in sound fundamentals and sticking to a familiar script: So long as Federal Reserve Chairman Jerome Powell takes on the mantle of gradual rate hikes, the “Goldilocks” growth story stays intact and earnings remain robust.
Investors have long hoped for a so-called Goldilocks economy as it implies conditions are “just right”: growth persists but not at a pace that requires central banks to tighten financial conditions at a policy faster than markets anticipate.
With so much fiscal stimulus waiting in the wings, however, some are wondering: When does too much of a good thing, become a bad thing?
“There is real fear here that, given the amount of fiscal stimulus that’s been put in place, which the U.S. economy is already doing very well, there could be overheating risk,” Sim Moh Siong, currency strategist at Bank of Singapore, told CNBC on Monday.
“If you look at the medium-term picture there is growing concern about twin deficits,” he added.
Jeremy Lawson, chief economist at Aberdeen Standard Investments agreed: “The tax cuts were badly timed, adding stimulus to an economy that didn’t really need it. The impulse from this spending bill is likely to be even larger for the economy than the tax cuts because the multipliers are significantly larger,” he told CNBC.
