Friday, 10 October 2014

The End of The U.S. Stock Market Party

Following 78 consecutive weeks with well above average growth in Federal Reserve assets and the money supply that resulted in a 24.5% surge in the Wilshire 4500 Total Market Index, the fun has now abruptly ended. 

As of today, the growth rate in the overall monetary "stimuli", measured as the combined growth rate of Fed assets and the money supply, has plummeted back to the 10.4% long term average since December 2003. By next week, chances are it will have dropped further. This decline in the growth rate has been ongoing for most of this year as the Fed has been tapering. It appears that the stock market has finally started to digest the implications of the taper as the S&P 500 has now shred more than 3% during the last month. 

The U.S. stock market party has likely ended for now and can possibly only be "saved" by the Fed reversing its existing policy or banks expanding credit aggressively (here for more). 


The U.S. Stock Market Risk Indicator, September 2014

It's The Money Supply, Stupid: 10-year Average Earnings- and Dividend Yields, S&P 500 (as of 21 Mar-14)