Taper Talk — The moment everyone has been waiting for finally came yesterday. JPow and the rest of the FOMC spit some heat on the state of the economy, some coming in line with expectations, while other information was relatively unexpected. 

First and foremost, while maintaining asset purchase tapering and rate hikes do not go hand in hand, the FOMC revealed plans to likely raise rates sooner than anticipated. At previous meetings, the phrase “not until at least 2024” was tossed around. Now, the so-called “dot plot” that allows FOMC members to predict rate hikes, has moved primarily to mid-2022. Similarly, JPow indicated tapering will come “soon” in his ever esoteric style, saying that while no decision was made, it was clear to members that tapering is not far away. 

Financial markets had a mixed reaction to the meeting. Stocks were largely up on the day, but bond yields traded somewhat sideways, as timing of these incredibly impactful events remains unclear. In short, the money printer will slow down and the cost of money will go up sooner than expected. Still think stocks will only go up?

BFFs — Don’t get too excited, we’re still not friends - the only BFFs we need are Bond Fund Flows. Contrary to popular belief, fixed income is not dead. The graph below shows weekly flows into ETFs and mutual funds that hold fixed income securities, and things are looking up. In fact, things have been looking up since mid-2020 despite ridiculously low interest rates, indicating that aggregate demand for these products and investment products in general remains very high by historical measures. 

Don’t get me wrong, bonds are still for nerds, but these nerds make money. The equity market has come under fire for its huge runup, scaring some into using the scary “bubble” word, but it appears stocks are not alone in their sizable gains. Demand for financial assets is elevated across the board, so things may not be as insane as they seem. 

Zooming Out on U.S & China — After shooting up well over 700% to kick off 2020, Zoom shares have fallen just above 50% from their peak in October of last year. With that freshly printed giant market cap, the firm went on a shopping spree and settled on cloud provider Five9 Inc. Now, U.S regulators are getting nervous. 

The proposed $14.7bn is spreading fear cloaked by the ominous phrase of “national security risk” as Zoom’s already heavy presence in, and connections to, China will only increase. Considering the U.S and China aren’t on the best of terms at the moment, Washington is worried. The worst named committee in American history, Team Telecom, will review the deal and see if the national security risk allegations hold any water. Just as China is playing hardball with their own companies and their relation to U.S markets, the U.S is playing right back.