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May
3
Jonathan Yates
Why Does the Stock Market Rise When the Federal Reserve is Admitting the Economy is Weak?
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All these indices surged today on reports that the Federal Reserve will continue and might even increase its purchase of Treasury Bonds and mortgage-backed securities, known as quantitative easing.

This is ironic as that is a de facto admission by the Federal Reserve that quantitative easing is failing in its of reducing unemployment and raising economic growth.  Despite acquiring trillions in assets, the Federal Reserve has not been able to ignite the US economy.  It is the same for other economies around the world that have implemented quantitative easing measures.  The chart below shows how much the asset sheet of the Federal Reserve has grown due to the quantitative easing policies.

 

 

Eventually, those assets will have to be assimilated back into the economy.

But that is not troubling the investor of today.  Stocks advancing today outnumbered those declining by about three to 1.  Those hitting a record high did so at a rate almost four times as high.  The market met the closing bell with a strong bullish sentiment, even though Chinese manufacturing is off and oil is falling as a result.

Even with the Federal Reserve admitting that the American economy still needs trillions in assistance, earnings season continues to be better than expected.  It is doubtful if anyone projected that housing prices would rise more than 9% over the last year, as was just reported.  This is continuing the strong opening two quarters for the new year.



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