Can Cheap Money Entice Small Business Growth?

October 21, 2020

Mish's Daily

By Mish Schneider

blankCo-Written by Mish and Forrest

A growing worry of stagflation (High inflation followed by stagnant economic growth) is becoming more of a trending reality as the pandemic looks to continue into the next year.

The March selloff affected major global supply chains and if paired with rising inflation, could create an even tougher environment for smaller businesses to survive or join today's economy.

Can cheap money from low interest rates be enough to entice new business startups?

If it can, then watching the financial sector would hint at small cap company growth.

Currently regional banks (KRE ETF) made another attempt to break the 200 day moving average.

A clean break over the 200-DMA would be a good sign that this sector is improving.

Something else to keep in mind is the rise of covid cases in the United States.

Who wants to open a brick and mortar type business without the security of regular tourist seasons or regular traffic?

With fresh fear from an uptick in cases, waiting for a vaccine could be critical for people to take the monetary risk of starting a business.

However, some businesses that are basically recession proof could take up some of that slack like for example Microsoft, started during a recession.

Or maybe we will continue to see an increase in online stores as people choose the safest route.

Should folks take a chance during the rough time to start a business or buy/improve a house, then banks could benefit.

KRE, the last member of the Economic Modern Family to signal any optimism could still turn out a great low risk opportunity

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S&P 500 (SPY) 340 the 50-DMA to hold, 346 to clear

Russell 2000 (IWM) 155 best underlying support. Better thru 162

Dow (DIA) 285 Pivotal area with 278-280 support

Nasdaq (QQQ) 290 resistance 280 support

KRE (Regional Banks) Rallied right to the 200-DMA at 40.61 and retreated

SMH (Semiconductors) 185 to 190 a good trading range.

IYT (Transportation) 200 support 212 to clear

IBB (Biotechnology) 134-135 support better through 141

XRT (Retail) 52 support thru 55 better

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