The policy makers from around the globe started to pump up the markets anew at the end of October, when the Bank of Japan eased and the government delayed a consumption tax. That same day, Japan’s largest government pension fund said it was doubling its purchases of risk assets, such as stocks.
Investors were greeted this past Friday with fresh stimulus announcements. There was a surprise interest rate cut by the People’s Bank of China (PBOC) and European Central Bank President Mario Draghi “bolstered some risk taking” and brought domestic equities to new all-time highs at the end of last week when he hinted strongly that the ECB would implement U.S.-style sovereign bond purchases at some point to boost flagging eurozone growth.
These moves come after the U.S. Federal Reserve. led by chair Janet Yellen, ended its bond-buying program, dubbed QE or quantitative easing, in October. The Fed is also moving towards its first interest rate cuts since 2006 sometime next year.
U.S. stocks kicked off the week in record-setting territory, with the S&P 500 up 11.6% for the year and coming off its 45th record close of the year. It closed at 2063.50 Friday. It was up another 5 points, or 0.3% in early Monday trading. In short, policy makers from abroad are filling the void left by the Fed. “Policy remains a core theme for markets, as evidenced by the rally following the PBOC’s surprise rate cuts and very dovish comments from ECB President Draghi,” Gina Martin Adams, senior analyst at Wells Fargo Securities, told clients in a morning research note.
Despite the rebounding economy and current strength or Corporate America, Adams says the future direction of U.S. stock prices could hinge on when and how aggressive the Fed raises rates next year.