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Friday, February 01, 2013

Markets "Hooked on Stimulus" as the Dow 30 Hits 14000

The Dow 30 hit 14000 a few minutes ago (for the first time since October 2007 when it reached its all-time high of 14198.10). All the Major Indices are up as I write this about 45 minutes after the markets have opened on Friday, as shown on the Daily charts below.


Mixed data released today shows that the Unemployment Rate has risen from 7.8% to 7.9%. Notwithstanding all the QE monetary stimulus programs that the Fed has implemented since 2009, it remains well above the low unemployment rates in 2007 (although it has been in a general decline since the peak in November 2009), as shown on the graph below. So far, the advance in the stock markets has outpaced the decline in the unemployment rate (and direct benefits of QE in that area), but, as I believe that Mr. Bernanke has mentioned, they are looking for financial stability...if the markets are an indication of that, then that particular objective is being met, so far. However, without further meaningful reductions in unemployment, one wonders for how long the Fed can continue to support the markets.


Regardless, markets appear to be "hooked on Fed stimulus," as the Fed continues its bond purchase program and is ready to employ its other policy tools, as they stated in their press release after their last meeting on January 30th. Here is an excerpt:

     "The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchase of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases."

The current uptrend remains intact.