Saturday, 18 February 2017

Two Good Reasons U.S. Stocks Are Doing Well

Reason 1: the money supply growth rate remains high. Reason 2: Interest rates remain low. Dividing the former by the latter indicates the extent of the current stimuli the two combined have on stock market prices.

As the more recent history shows, the correlation between y/y changes in the money supply divided by bond yields and stock market prices is a fairly close one. 

Not to say this is not a stock market euphoria, but there are hence indeed good reasons why stocks are doing well, for now. None of these two developments are sustainable however, which is why this bull market will end as any other bull market; with a bust.

For more on this particular topic, see: Why The Stock Market Might Move Higher In The Short Term

I explain in detail the relationships between the money supply, the business cycle, and stock market returns in my book Money Cycles - The Curse of an Elastic Money Supply.

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