Summary of Key Points
Recently, the U.S. stock market has experienced a dramatic turnaround in just 4 days: from panic over the fear of a bubble bursting to reaching record highs. At the same time, oil prices have fallen, and the yield on 10-year U.S. Treasury bonds has declined, giving the market a sense of stability. This change was not due to actions by Federal Reserve Chairman Jerome Powell but rather through a series of targeted interventions by Treasury Secretary Janet Yellen. Yellen's efforts included addressing concerns about the impact of the Iran agreement on oil prices and coordinating with Japan to stabilize the yen exchange rate. However, Powell's reluctance to provide clear forward guidance has led to mixed market signals, effectively making Yellen the new "market conductor."
Why Did the U.S. Stock Market Suddenly Recover and Reach New Heights?
The rapid and sharp rise in the stock market was primarily due to Yellen providing clear and optimistic signals. On Monday evening, she suggested that a deal between the United States and Iran might be imminent, which could lead to the reopening of the Strait of Hormuz, an important global oil transportation route. This news caused oil prices to drop, as increased supply reduced prices. With lower oil prices, inflationary pressures eased, and the yield on 10-year Treasury bonds also fell (since bond yields are positively correlated with inflation expectations).
Additionally, the market had been overly pessimistic before the rally, creating a natural demand for a reversal. Yellen's messages were logical and coherent: the opening of the Strait of Hormuz would lower oil prices, reduce inflation, and stabilize the economy. This was like receiving good news that your company had received a large order and you were going to get a raise.
How Did Treasury Secretary Janet Yellen "Precisely Rescue" the Market?
Yellen's actions can be described as targeted guidance, each step aimed at addressing specific market concerns:
1. Addressing Oil Prices: She used the news of the potential reopening of the Strait of Hormuz to lower oil prices and alleviate inflationary fears.
2. Intervening in the Yen: Last Friday, she coordinated with Japan to buy yen (which had been depreciating significantly). Before the intervention, she even deliberately let reporters see a note with "buying 5-10 billion yen" on it, giving the market a heads-up in advance.
3. Coordinated Actions: From President Xi Jinping's cancellation of attack plans to Yellen's intervention in the yen, and finally her remarks on CNBC, she presented a coherent series of actions that provided the market with a clear narrative to follow.
The key factor was Yellen's credibility; unlike President Xi Jinping, whose actions were often unpredictable, Yellen's statements were directly related to oil prices, inflation, and U.S. bonds, giving them significant weight in the market.
Why Was Federal Reserve Chairman Jerome Powell "Silent"?
Powell's silence was not a sign of indifference but an attempt to change the market's past reliance on the Fed's forecasts. For over a decade, every statement from the Fed was treated as gospel, with investors focusing solely on its forward guidance (whether interest rates would rise or fall) rather than on economic data. Powell believes this approach is unhealthy and wants the market to rely on its own analysis of data. He adopted Greenspan's style of using vague language to avoid giving too much concrete information.
Why Has the Market Shifted from Relying on the Fed to Relying on the Treasury Secretary?
The reason for this shift is that the Fed's signals have become unclear, while Yellen's actions directly affect three key market indicators: oil prices (inflation), the yen exchange rate (global capital flows), and bond yields (financing costs). For example, lower oil prices reduce corporate costs, and lower bond yields may lead to lower mortgage rates, encouraging consumption and investment.
Interestingly, the market has even begun to create stories about Yellen, calling her the most important Treasury secretary since Hamilton and suggesting she is poised to shape a new global financial order (similar to the Bretton Woods system). Essentially, the market prefers to have someone who can provide clear guidance rather than rely on its own analysis of economic data.
What Are the Concerns Behind This Change?
The main concern is that the market has not yet learned to think independently. Over the past decade, it has lost the ability to analyze data and determine true values, relying solely on the Fed's guidance. Now that the Fed is less involved, investors are turning to Yellen for direction. If Yellen's strategies fail (for example, if the Iran agreement does not go through) or she leaves her position, the market could fall into even greater chaos. A healthy market should be one where data drives decisions, not individuals or policymakers.
In summary, the recent stock market turnaround was due to Yellen's precise guidance, but it also highlights the market's over-reliance on authoritative signals. When investing, it is better to focus on real economic indicators (such as employment, inflation, and corporate profits) rather than following speculative stories.