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Tags: stocks | rally | quicksand | Federal Reserve

Financial Times: The 2013 Stock Rally Is Built on Federal Reserve Quicksand

By    |   Tuesday, 22 October 2013 02:13 PM EDT

The health of third-quarter earnings may be irrelevant because massive Federal Reserve monetary stimulus continues and investors can ignore fundamentals, according to the Financial Times.

U.S. stocks have already risen 21.5 percent this year, which the newspaper compared to the 2013 run-up in Japan’s stock market, a country where the central bank has been even more accommodating than here, and Greek debt.

“If the Fed declined to even slightly back off from its current policies in September, when the stock market reached record highs, it clearly has no intention of doing so any time soon,” the Times predicted.

Editor's Note: Stocks to Drop 90%? These 5 Charts Reveal Why . . .

Wall Street’s earnings estimates for the current quarter are beneath the second quarter’s actual results, and average earnings per share for the S&P 500 have dropped from more than $30 to less than $27, JPMorgan data showed. During the same time period of diminishing results, the S&P 500 has ascended more than 10 percent.

Moreover, net margin debt has hit an all-time high, the Times noted, even while highly leveraged, i.e. overpriced, stocks are outperforming the broad market.

“Both of these data points serve to underscore that Fed policy is less about investment than speculation, built on the quicksand of leverage,” the Times declared. “The events of the past two months give more ammunition to those who contend that the Fed can never taper and that to hedge bullish positions is just foolish.”

Jeffrey Saut, managing director at Raymond James & Associates, was decidedly optimistic this week in a commentary for clients, saying many obstacles to a rising stock market have been overcome.

“According to the weight of the evidence, the primary stock market trend remains 'up!' ” he declared.

Saut predicted investors will ignore government economic reports, many of which have been delayed for the next few months, and that GDP growth will jump to 3 percent in 2014.

“Finally, with Janet Yellen at the helm of the Fed it should be steady as you go. That implies no tapering and plenty of liquidity.”

Bob Doll, chief investment strategist at Nuveen Asset Management, predicted the Fed’s decision to delay tapering its massive asset purchases will encourage continued risk-taking by investors. In that environment, he said, stocks will likely continue to outperform bonds.

Editor's Note: Stocks to Drop 90%? These 5 Charts Reveal Why . . .

“We continue to suggest investors should overweight risk and underweight safety,” he wrote in a note for clients.

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StreetTalk
The health of third-quarter earnings may be irrelevant because massive Federal Reserve monetary stimulus continues and investors can ignore fundamentals, according to the Financial Times.
stocks,rally,quicksand,Federal Reserve
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2013-13-22
Tuesday, 22 October 2013 02:13 PM
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