I am sure you have noticed the last few months that the US stock market has been hitting all time highs (ATHs) over and over again. In fact just yesterday we again hit another stock market ATH. With an ongoing impeachment, slowing economy, and flat earnings, it makes you wonder- what is causing all this stock market action right?
I get that the stock market can be a bit tough to follow, after all there are usually a lot of moving pieces driving price action, or so most people think. It turns out in this case, that it all boiled down to just one thing. Yes, just one event triggered the succession of stock market ATHs. But first here is Donald Trump taking a victory lap well for himself, and no it wasn’t Trump who created this or really did anything about it.
Let me lay it all out for you, 2019 went like this…. corporate buybacks fueled the stock market in Q1, Q2 and first half of Q3, then insiders started pulling out money at rapid pace, and it just so happen that on the 11 year anniversary of Lehman Brothers collapse, the repo markets jumped from 2% to 9% and the FED was forced to start printing money and prematurely start QE4. How suiting, the Lehman disaster started QE1 and now here we are 11 years later with a monumental sized coincidence to start QE4.
Look around, right now earnings are flat, economy is cooling and yet we are hitting ATHs on almost a weekly basis? The now $300 billion dollar repo market bailout took the reigns of fake expansion and is driving the markets to new all time highs almost weekly. There’s your answer to the big mystery as to how a declining market in the middle of an impeachment can hit ATHs. Feel free to send your thank you letters to the FED NY branch directly.
This injection of cash has worked its way through the money markets and back into the stock market where its acted as steroids to provide pumped up gains that cannot last. Here is a recent look at the FED balance sheet…
In just the last week, the FEDs balance sheet has grown by $30 billion, the ECB is getting in on the party too with a nominal $12 billion added this past week. Global liquidity is driving the markets which is coming from injections of cash from central banks. So all it takes is over $350 billion printed and injected back into the interbank markets to make stock market ATHs.
On December 14th the US market closed at $32 trillion market cap for the first time ever, which is roughly 149% GDP.
Most countries around the world are cutting rates right now and in fact Trump called on the FED to do a rate cut minutes after his victory lap.
Here is the outlook of QE in 2020, which fine if you don’t believe QE4 already started, it will in early 2020.
This surely won’t last and limits more and more the firepower the FED has, Q1 of 2020 will be interesting to say the least. They will need to pull a serious rabbit trick to keep this level of expansion up. A Great Reminder To Keep Building!
Also I can’t stress enough that confluence doesn’t mean causality as with anything!