Investment Guide

The Federal Reserve System controls the money supply and interest rates to achieve the desirable economic conditions. The Fed has maintained easy money policy during the corona virus havoc so as to make it easier for people to borrow money at historically low rates. This has been further supplemented by the Government by providing incentive money to low income people. The result is very high demand of new housing and improvements to the existing real state. People have money and so there is high demand of all kinds of items and so the business are prospering. This is good for the economy as well as the stock market. Notice that the stock market has done really well in this period. Recently the Fed gave an indication on cutting the purchase of bonds to reduce the prospect of inflation. This would tend to reduce the easy money supply and be negative for the stock market. The effect of that was felt in the stock market for a few days. For more details, refer to chapter 14 entitled "Economic Factors in Investment Decisions" in the book.