Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19
Where is the Top for Natural Gas? - 7th Nov 19
Why Fractional Shares Don’t Make Sense - 7th Nov 19
The Fed Is Chasing Its Own Tail; It Doesn’t Care What You Think - 7th Nov 19
China’s path from World’s Factory to World Market - 7th Nov 19
Where Is That Confounded Recession? - 7th Nov 19
FREE eBook - The Investment Strategy that could change your future - 7th Nov 19
Is There a Stock Market Breakout Ahead? - 6th Nov 19
These Indicators Aren’t Putting to an Economic Resurgence - 6th Nov 19
Understanding the Different Types of Travel Insurance - 6th Nov 19
The Biggest Gold Story Of 2020 - 6th Nov 19
Best Money Saving FREE Bonfire Night Fire Works Show Sheffield 2019 - 5th Nov 19
Is the Run on the US Dollar Due to Panic or Greed? - 5th Nov 19
Reasons Why Madrid Attracts Young Professionals - 5th Nov 19
Larger Bullish Move in USD/JPY May Just Be Getting Started - 5th Nov 19
Constructive Action in Gold & Silver Stocks - 5th Nov 19
The Boring Industry That Hands +500% Gains - 5th Nov 19
Stock Market Chartology vs Fundamentals - 4th Nov 19
The Fed’s Policy Is Like Swatting Flies with Nuclear Weapons - 4th Nov 19
Stock Market Warning: US Credit Delinquencies To Skyrocket In Q4 - 4th Nov 19
Stock Market Intermediate Topping Process Continues - 4th Nov 19
Stock Market $SPY Expanded Flat, Déjà Vu All Over Again - 4th Nov 19
How To Buy Gold For $3 An Ounce - 4th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Key Market Trends between QE1 and QE2

Stock-Markets / Quantitative Easing Mar 19, 2011 - 10:49 AM GMT

By: Asha_Bangalore

Stock-Markets

Best Financial Markets Analysis ArticleThe Fed's latest policy statement suggested that it is most likely to complete the second round of quantitative easing (QE2) by June 2011.  Discussions are underway about the status of financial markets after the termination of QE2 and if additional support will be necessary for self-sustained economic growth.  In the interim, it is informative to trace the behavior of markets when QE1 was completed and QE2 was not in place.  Chairman Bernanke's August 2010 speech laid the foundation for expectations of QE2. 


QE1 involved the purchases of $300 billion of Treasury securities, $1.25 trillion of mortgage backed securities and $175 billion of agency bonds and was in place between December 2008 and March 2010.  The U.S. economy had registered three quarters of economic growth by the end of the QE1 program but the unemployment rate in March 2010 stood at 9.7%, which is small decline from a high of 10.1% in October 2009.  The jobless rate failed to register a meaningful drop until later in 2010 and more so by January-February 2011.  The elevated unemployment rate was a large part of the reason for QE2.  In addition, inflation readings were below levels consistent with price stability, another factor justifying QE2 (see Chart 2). 


Equity prices in the United States moved up when QE1 was in place and posted a setback in 2010 when the European debt crisis unfolded in the first-half of 2010 and triggered a small correction.  But, equity prices turned around and volatility declined (see Chart 3) many months prior to the inception of QE2 and when QE1 has expired.


The debt crisis in Europe played a role in the behavior of equity markets across the world.  Equity prices fell for a short period but recovered as the Euro-zone problems where addressed (see Chart 4). 


With the exception of the flight to safety during the early months of QE1 in 2009 and the European debt crisis phase in early-2010, the dollar has lost ground.  Essentially, the movement of the dollar reflects market assessment of fundamentals germane to the dollar. 


 
In the bond market, the 10-year U.S. Treasury note yield rose as support from QE1 revived economic activity.  The debt crisis in Europe and the soft tone of economic data led to a rally in the bond market during the period when QE1 had expired and QE2 was not in place. 


What can one take away from these charts?  First, QE1 provided support to the U.S. economy and revived economic activity.  Second, in the months before QE2 was put in place, a turnaround of the U.S. economy from a severe recession was a vote of confidence which lifted equity prices.  Third, if economic reports in the months ahead plant seeds of doubt about the durability of economic growth, equity prices are most likely to post declines and a drop in interest rates is possible, irrespective of whether QE2 has expired. 

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com
Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Copyright © 2011 Asha Bangalore

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules