While getting a lot of deserved media attention, the inevitable question accompanying the commentary is “How much of this rally has been due to the Federal Reserve and its ultra loose monetary policy?”
-Mark Luschini, chief investment strategist, Janney
- Is the Stock Market Rally Fed Made? – Mark Luschini, Chief Investment Strategist, talks about the impact the Fed and its ultra loose monetary policy has had on the stock markets either flirting with or hitting new highs. While he says it would be disingenuous to not acknowledge the influence, he points to the commensurate lift in earns growth as a cause. Since earnings have risen, domestic and global economic conditions have sturdied, and consumer and business activity has apparent momentum, he believes stocks can hold their value and rise further. He thinks the economy will strengthen over 2013 and provide a good climate for risk assets to advance, therefore he encourages investors to consider U.S. stocks (energy, healthcare, tech, industrials, materials) and for patient investors, international markets.
- A Grand Opening – Greg Drahuschak, Market Strategist, discusses the S&P 500’s second consecutive monthly gain, a significant sign when coming at the start of a new year. He suggests if the S&P 500 tops its all-time closing high at 1565, barring a significant change in the underlying economics, he would be inclined to reduce equity exposure for a time or at least deferring new equity investments. As of now, he sees the overall market to be fairly valued, but with the low interest rates, it’s possible that the market’s price/earnings ratio could rise. Greg is entering March with the belief the market’s cycle peak is still ahead, although he would be mindful of the potential for a temporary setback before a new high comes.
- Winds of Fed Change Slowly Blowin’ – Guy LeBas, Chief Fixed Income Strategist, suggests the minutes from the January FOMC meeting hint at the potential for the first change in the bond buying policy regime in place since 2008. With a number of committee members (which is quite significant) hinting at a complete regime change, he could see meaningful pullbacks in the pace of bond buying as soon as April, more likely by June. Bernanke’s policy outlook posed mixed messages and introduced uncertainty into fed policy and against this backdrop, he finds it important to identify a few clear impacts of Fed policy: (1) an end to bond buying doesn’t necessarily mean higher interest rates; and (2) the Fed has been the dominant force behind driving risk asset prices higher in the last three-and-a-half years.