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You’d think the champagne would be flowing down Wall Street these days.

After all, the beginning of the end of the pandemic is here, with vaccination rates steadily rising and hospitalizations on the decline. States are easing Covid-19 restrictions. Households were already sitting on piles of savings before they started receiving the third round of federal stimulus payments.

It’s not crazy to believe that the economy could return to something approaching normalcy by summer. The companies and industries slammed by social distancing orders are planning for a surge in new business, which can be seen in the rising share prices of many beaten-down firms.

Last week, the Federal Reserve raised its 2021 GDP outlook to +6.5% from the +4.5% forecast it gave back in December.

Despite all this, Wall Street’s animal spirits are lacking a certain oomph. By and large, major stock indexes have seen very halting gains in 2021. Fed Chair Jerome Powell has been pelted with criticism by market participants desperately seeking more guidance after bond yields jumped in March. In the background, certain investors seem worried that 1970s-era stagflation is lurking in the shadows, like Michael Voorhees.

This is in stark contrast to 2020, when the S&P 500 soared by 16% even as Covid-19 hamstrung the economy, sparking a severe recession in which tens of millions lost their jobs.

We’ve been repeatedly reminded that the stock market isn’t the economy. That cliche is as true now as it was then, and you should be mentally preparing for the possibility of strange times ahead in markets as we emerge from pandemic lockdown life.

The Fed’s Consistent Message

Your heart goes out to Fed Chair Powell, who has worked tirelessly to make his intentions crystal clear: The Fed will not be changing course anytime soon.

After the Federal Open Markets Committee (FOMC) wrapped up their March meeting, Powell repeated that the labor market had a long way to go before achieving full employment and confirmed that inflation had a long way to go before meeting the Fed’s 2% target.

“We expect to maintain an accommodative stance of monetary policy until these employment and inflation outcomes are achieved,” said Powell.

This reiteration came after a March 4th interview at the digital Wall Street Journal Jobs Summit, where Powell warned that “substantial further progress” would be needed on the jobs and inflation fronts before the FOMC would even dream of raising interest rates or tapering quantitative easing (QE), which is the Fed’s name for their monthly purchases of $120 billion in bonds.

In a February 10 speech at the Economic Club of New York, Powell said, “we will not tighten monetary policy solely in response to a strong labor market.” He also reiterated the Fed’s new stance on allowing inflation to run a bit over its 2% target before tapping the breaks on the economy.

“[F]ollowing periods when inflation has been running persistently below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time in the service of keeping inflation expectations well anchored at our 2% longer-run goal,” said Powell.

In a March 2 speech at the Council on Foreign Relations, Fed Governor Lael Brainard was perhaps even more explicit. Regarding near-zero interest rates, Brainard said “… it will be appropriate to maintain the current target range of the federal funds rate until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2 percent for some time.”

Even when the economy begins to take-off, Brainard said interest rate changes would likely be only gradual. “The forward guidance notes that monetary policy will remain accommodative in order to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time,” she said.

What about all those billions in bond purchases that have the effect of lowering long-term interest rates? “In addition, asset purchases are expected to continue at least at their current pace until substantial further progress has been made toward our goals,” said Brainard.

On February 24, Federal Reserve Vice Chair Richard Clarida beat the same drum.

“[O]ur policy will aim to achieve inflation outcomes that keep inflation expectations well anchored at our 2 percent longer-run goal,” he said at the U.S. Chamber of Commerce. “We expect to maintain an accommodative stance of monetary policy until these outcomes—as well as our maximum-employment mandate—are achieved.”

You get the idea. And while Wall Street may be hearing these words, they’re not really listening.

Wall Street’s Interest Rate Jitters

What professional investors have most certainly heard from Powell is his comment that the Fed would take action to address “disorderly conditions in [the] markets or persistent tightening in financial conditions that threatens the achievement of our goals.”

Close your eyes, and you can hear investors’ hearts beat faster. What counts as disorderly? What’s persistent tightening? Does now count? How would the Fed react? What would that mean? Uncertainty about comments like this drive Wall Street bananas.

But perhaps even more fundamentally, investors are concerned that an improving economy will result in some change, even if the Fed says we have a long way to get back to normal. The gain of almost 380,000 jobs in February, even as much of the country remains under some form of lockdown, points to how quickly the economy might recover, especially if President Joe Biden’s $2 trillion relief package passes.

As the economy grows, investors will sell off low-risk governmental bonds and invest the proceeds in riskier but more lucrative assets, like stocks. Since bond prices and yields are inversely related, that will cause borrowing costs to rise and may put a damper on economic activity. This is why investors are so nervous, despite the Fed’s dedication to easy money.

“Many questions have yet to be answered,” said Rick Rieder, chief investment officer of BlackRock. “[The Fed has] said that they will communicate well in advance before shifting policy toward tapering and then ultimately raising rates, and we expect further clarification to emerge in the coming months, and certainly not later than [in June].”

In the meantime, Reider warns that investors will remain a cranky bunch. “Expect more volatility, since markets hate uncertainty,” he said.

What Does This Mean For You?

The events over recent weeks should disabuse you that the market moves in a predictable fashion. Stocks rose after Powell’s FOMC press conference, but largely dropped the next day. Investors are always looking ahead, and crave Fed hand holding.

This dynamic can lead stocks to jump when you think they should drop, and vice versa. A topsy-turvy market can freak out even long-term savers, so it’s crucial you stay the course even if things get soupy.

Remember, while longer-term borrowing rates have trended higher recently, they would be viewed as miniscule in nearly any other time. The yield on the 10-year Treasuries is at just 1.7%, after all.

“[R]ates are anemically low by historical standards, as the 10-year yielded an average of less than 2.4% for all of the 2010s, versus a high of nearly 10.5% in the 1970s, and averaged nearly 5.7% since 1953,” said chief investment strategist of research firm CFRA Sam Stovall. “Yet, S&P 500 returns remained resilient, despite rising yields.”

History teaches us that the median monthly change in the S&P 500 was highest when the 10-year yielded below 3% since 1953. The line in the sand between median monthly gains and declines occurred around 6%, which was a shade above its 5.68% long-term month-end average.”

When looked from that angle, you can’t help but hope Wall Street gets a grip.