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Stock Market on Cusp of New Record. Soros Cites ‘Fed Liquidity Bubble’

Last Updated September 23, 2020 2:19 PM
Sam Bourgi
Last Updated September 23, 2020 2:19 PM
  • The S&P 500 Index continues to flirt with record highs.
  • Signs of economic recovery suggest the worst of the Covid-19 pandemic has passed.
  • Billionaire investor George Soros believes the Federal Reserve has inflated an asset bubble that will end in misery.

U.S. stocks edged lower on Thursday, but the major indexes continue to hover near all-time highs thanks to months of record liquidity from the Federal Reserve.

Not everyone is convinced that the Fed-inspired rally will last. Billionaire financier George Soros has divested from the market over fears that we are in a massive “liquidity bubble.”

S&P 500, Nasdaq Hover Near Record Highs

Wall Street’s major indexes traded mixed on Thursday, with the large-cap S&P 500 Index settling down 0.2% at 3,373.43.

S&P 500 Index
Despite falling on Thursday, the S&P 500 Index is trading just below all-time highs. | Chart: Yahoo Finance 

Most of the 11 primary sectors  finished lower, with energy leading the pack.

The Dow Jones Industrial Average  fell 0.3% to 27,896.72. Meanwhile, the technology-focused Nasdaq Composite Index rallied 0.3% to finish at 11,042.50.

Labor Market Shows Signs of Recovery

Stocks recovered Thursday after the Labor Department reported a sharp drop in weekly jobless claims–signaling that the economic destruction caused by government lockdown orders was beginning to ease.

The number of Americans filing for first-time unemployment benefits fell to 963,000  in the week ended August 8. That’s the first time since March that claims were below 1 million .

Video: Here’s what the decline in jobless claims means for the economy.

Although the drop in jobless claims is a strong signal that economic recovery is afoot, it may also be due to the expiration of extra unemployment benefits. Washington’s pandemic relief package put an additional $600 a week in the hands of unemployed Americans, but that program ended July 31.

President Trump signed executive orders  on Saturday that would extend $300 in federally funded benefits, plus an additional $100 in state-funded payments.

Soros Warns of Fed Liquidity Bubble

Wall Street’s historic relief rally since March wouldn’t have happened without trillions in stimulus relief from the Federal Reserve. According to George Soros, the “Fed liquidity bubble”  is likely to end in tears.

According to MarketWatch, Soros is no longer invested in the market  because it is a massive bubble that’s being fueled by “expectation of more fiscal stimulus along with hopes Trump will announce a vaccine before November.”

fed balance sheet
The Fed’s balance sheet began to rise again in September amid the repo crisis. The balance sheet surged amid the pandemic in early 2020. | Chart: Federal Reserve 

By lowering interest rates back to zero and pumping trillions into the economy, the Fed’s pandemic plan exceeds its 2008 relief package .

Central bankers are expected to keep stimulus coming for years , with low interest rates baked into their guidance through at least 2022.