Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Fed or Fundementals Driving Stock Market Moves?

Stock-Markets / Stock Markets 2013 Jun 27, 2013 - 12:18 PM GMT

By: Money_Morning

Stock-Markets

Gary Gately writes: What's driving the stock market - the Fed or company fundamentals?

The answer, of course, depends whom you ask.

Has most or all of the growth in the market over the past few years been due to the Fed's massive QE easy money stimulus?


Or is it fundamentals like earnings per share and the price/earnings ratio?

We asked three experts to weigh in: Money Morning Chief Investment Strategist Keith Fitz-Gerald, Money Morning Capital Wave Strategist Shah Gilani and Brian Wesbury, the chief economist at First Trust Advisors.

Here's their take.

Keith Fitz-Gerald

"I think this rally has been all about Fed Chairman Ben Bernanke for a long time," Fitz-Gerald said. "And we know the Fed's goal was to inject trillions of dollars into the economy in an effort to stimulate it and what that in fact produced was a bubble of significant proportions that artificially sustained and built up the stock market."

But Fitz-Gerald said he's not too concerned about the Fed's signaling it will taper quantitative easing or about the plunge in stock prices that followed.

"I don't lose sleep over what just happened," Fitz-Gerald said. "I saw this coming from a mile away. I've been telling people the train wreck is coming and now we have it."

Fitz-Gerald said the selloff proves capitalism will ultimately fix the economy.

"You know the Fed's been manipulating the market for so long that the markets have forgotten what risk is. And the bloodletting, this rout of stocks, is proof that capitalism exists. People bought and sold."

After the recent downturn, Fitz-Gerald said, investors who choose stocks carefully can profit.

"If the reasons you own them remain intact - for example, they've got a great product, they've got international market share, they've got a strong balance sheet, they've got disciplined executives - if all that's still valid, then history suggests big pullbacks will be kind to you. They're actually buying opportunities."

Shah Gilani

Gilani said he still can't fathom why the Fed announced last week that it'd scale back QE.

"Personally, I don't understand why they did that," he said. "Why didn't they just shut up and say, 'We're watching to see how things go?' They panicked everybody."

Gilani pointed out the stimulus lowered interest rates, enabling corporations to borrow money at low rates in the bond market and bringing down mortgage rates to near-historic lows.

"What about people buying houses?" he said. "There's supposedly this housing recovery. Now rising rates are going to choke off that. So everything comes into question because of the Fed's tapering. It's like all bets are off now."

Gilani notes that the Fed's signal comes amid a credit crunch in China that has heightened fears the country's economic growth won't continue.

That, in turn, could hurt the U.S. and global economy and hit stocks here at home, Gilani said.

Speaking of China and other emerging markets, Gilani said, "Now, if those foreign markets start to slow down and the dollar rises against these other currencies, U.S. export products are not going to do as well and the export market, which has been a source of growth for U.S. corporations, will slow down or stop."

With the scaling back of QE now on the horizon, Gilani said investors must choose stocks more carefully.

"It's a stock-picker's market now," he said. "You can't throw darts at the wall anymore and say, 'Well, my dart landed on these stocks. Let's buy them.'"

Brian Wesbury

Financial news can drive the stock market on an hourly, daily or even weekly basis, but not over the long haul, Wesbury says.

Yes, he says emphatically, fundamentals still do matter.

"Some people would say, 'Well, the only fundamental that matters is the Fed. It's all a sugar high and that explains everything.' I'm not in that camp," Wesbury said.

"I do believe there's fundamental growth happening, that new things are being invented: fracking, the cloud, the smartphone, 3D printing, the tablet, nanotechnology, biotechnology."

Wesbury said he gets tweets from people who make the "sugar high" argument. "Every time I get that tweet from somebody, I tweet back, 'Oh, go tell that to the people who invented fracking. That oil coming out of the ground? It's all because of Ben Bernanke.'"

He points out P/E ratios are no higher than when QE began.

"And if this was all a sugar high, if this was all phony, you should have seen P/E ratios up because you're just driving asset prices up regardless of the growth of earnings or anything else. ... That's what a sugar high would mean to me, that markets go up no matter what happens.

"I do believe that productivity's happening and I do believe that productivity's driving earnings and I do believe that stock prices have responded to those earnings and that from a valuation point of view, we still aren't expensive. In fact, I think we are cheap in equities."

How cheap? Based on "conservative" equity models, Wesbury said, the stock market's about 35% undervalued.

Source :http://moneymorning.com/2013/06/26/the-fed-or-the-fundamentals-whats-behind-stock-market-moves/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 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