Markets Are Ignoring What’s Important; Fed Could React Desperately

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U.S. equity markets are pricing in perfection when it comes to a potential economic recovery from a world devastated by the COVID-19 pandemic. However, according to one market analyst that optimism could be misplaced as there is still a lot unknown about the virus.

In an interview with Kitco News, Jasper Lawler, head of research at the London Capital Group, said that markets are ignoring economic fundamentals and instead are being driven by the massive liquidity injections from the Federal Reserve and the U.S. Federal Government. He added that in this environment, it makes sense to hold some gold.

Lawler said that he thinks central bank liquidity has gone as far as it can go and that might make it difficult for equity markets to push higher.

"I think the next stage of gains in the stock market are going to be a lot harder work because it's going to be more as a result of real expectations for the economy," he said.

Although Lawler said that he doesn't expect the Federal Reserve to introduce negative interest rates, he does see one more potential card they can play: direct currency intervention to weaken the U.S. dollar.

"If you make that assumption that negative interest rates don't work and they are not going to choose that option, then you have to start to look around, at what else is there in that rather empty looking toolbox," he said.

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