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Illustration: Eniola Odetunde/Axios

Normally the health of business drives a country's asset prices, but that's not what's happening at the moment, according to Deutsche Bank Securities chief economist Torsten Slok.

What's happening: The S&P 500 has risen by around 20% so far this year, despite weakening U.S. economic data and a slowing labor market. Earnings growth, typically the bread and butter of equity market returns, was negative in the second quarter and is expected to be negative in the third and fourth quarters as well.

  • U.S. GDP growth is expected to be lower in the second half of the year than in the first and lower still in 2020, a negative picture for the country's growth outlook and that of its public companies.

What we're hearing: Slok, a typically even-handed economist, expressed his disbelief at the decoupling of asset prices from fundamentals in a recent note to clients.

  • "Perhaps the answer is that equity and credit markets are no longer driven by fundamentals, but instead by Fed and ECB promises of lower rates, more dovish forward guidance, and QEternity."
  • "In short, because of unlimited central bank safety nets — including in the new MMT form of aggressive fiscal policy — S&P500 may not decline, and credit spreads may not widen next time we enter a recession."

Why it matters: This isn't the way public markets are supposed to function.

The big picture: In an email exchange, Slok asserted that there were 3 reasons "this time is different" from other Fed "puts," or bets by investors that central banks will step in to lower rates if stock prices get too low.

  1. The Fed is actively responding to asset prices. "This shows that the Fed is directly trying to ease financial conditions" and "trying to limit declines in the stock market and widenings of credit spreads."
  2. The ECB has re-started quantitative easiing, which is also aimed at boosting prices of risky assets.
  3. Central banks are not effectively "promising" fiscal expansion, which is "a whole new narrative" in markets. "This has introduced a new safety net under risky assets. Put differently, why would I sell equities today if governments and central banks are about to do a big fiscal expansion financed partly by the central bank balance sheet."

The bottom line: Asset managers and economists have long suggested the Fed and other central banks are overly concerned with stock prices. But, as the chief economist at a major investment bank, Slok is one of the first in his position to allege stock prices could be this influenced by central bank policies.

Go deeper

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Senate Democrats target billionaires

Illustration: Annelise Capossela/Axios

After failing to get a deal on other planned tax increases, key Senate Democrats are pivoting to a billionaires' income tax to pay for President Biden's social spending.

The big picture: No advanced economy has attempted anything similar on such a scale.

Anti-abortion activists' Supreme Court dreams are coming true

Photo illustration: Annelise Capossela. Photos: Kevin Dietsch/Getty Images

This is the moment the conservative legal movement has been building toward for decades: The solidly conservative Supreme Court is about to hear two major abortion cases within a month of each other.

Why it matters: All of this is likely to end with significant new restrictions on abortion and a clear path for Republican-led states to win the next big abortion cases, too — the culmination of a long and bitter fight for control of the judiciary.

Felix Salmon, author of Capital
8 hours ago - Economy & Business

Trump's volatile return to the stock market

Expand chart
Data: YCharts; Chart: Axios Visuals 

Donald Trump this week became both a meme stock and a social-media entrepreneur at the same time, by announcing that a new company called Trump Media & Technology Group was going to merge with an existing company listed on the stock market.

Why it matters: The medium-term promise of Trump's media company is that it will replace Twitter for anybody wanting to keep track of Trump's messages. The short-term promise is that it can be a hot new speculative vehicle for people wanting to get rich quick in the stock market.