Global Monetary Policy continues to dominate worldwide stock market movement. The Fed said they would be flexible to increasing or decreasing stimulus should the economy warrant it and the European Central Bank lowered interest rates another .25 basis points last week and reiterated a strong commitment to providing liquidity to the markets. India also lowered interest rates and of course this comes on the backing of Japan announcing a stimulus program 2.5 times the size of the one the United States orchestrated. The economy itself doesn’t seem to be on an accelerated growth path but employment seems to have flatlined, China is still growing at 8%, and Europe hasn’t destabilized any worse.
The reason low interest rates are so important to an upward moving stock market is essentially because you can’t make money investing in anything else. When you can only get .5% annually on a savings account, 1.5% on a 10 year CD, or less than 2% on a 10 year treasury bond, those investments just don’t work because remember you are trying to earn money and outpace inflation. With inflation typically running at a 2% clip these are breakeven or losing investments for many years to come. Also, pension plans need to earn more money on a consistent basis in order to reach their obligations to pay their retirees and there is no place to earn those returns other than equities. Central banks around the world have created the “perfect storm” for higher stock prices and I expect to see that continue until we see a change in monetary policy.