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Economic and Market Update
Economic & Market Update, April 2014
By Richard Morey
In this month’s report we are going to focus just on the markets, both stock and bond, weaving the relevant economic facts into the discussion. We’ll begin with the stock market.
The Stock Market
Through the first quarter, the S&P 500 index of large U.S. stocks gained 1.81%, while the Dow went down .15% and Nasdaq went up .84%. This is a far cry from the large gains stocks had in 2013. Before looking at where stocks may be headed, we will first explore why they have gone up so much in recent quarters. This is actually an easy exercise, as last year’s gains can be summarized in one phrase – belief in the Federal Reserve Board’s infallibility.
Over the last few years investors decided risk cannot strike their portfolio as long as the Fed is doing something (anything). The Fed has been doing three things in recent years – keeping short-term interest rates low, printing money and talking. As I have described numerous times in these reports, the Fed’s money-printing has actually done little if anything to spur our economy. How could it, when almost all the money they have printed has sat idle in the banks’ accounts? (Yes, they have loaned out money to “emerging market” economies, particularly in Asia, but almost none of the money printed in the last two years has been lent out to either U.S. businesses or consumers.)
Somewhat surprisingly, the Fed is now curtailing the amount they are printing each month. Thus far they have reduced the amount they are printing from $85 billion to $55 billion a month, and they have clearly stated they intend to continue reducing this amount by $10 billion a month until they are out of the money-printing business. This means they will no longer be engaged in “quantitative easing,” i.e. printing money, by this fall.Read more