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S&P 500 rises past 1,700 amid economic data and QE speculation

TradingPub Admin | August 1, 2013

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The S&P 500 Index rose above 1,700 for the first time in history on August 1, as global market participants responded to an encouraging report on jobless claims and speculation surrounding the future use of QE.

The benchmark group of stocks had a strong day, having already risen 1 percent to reach 1,703.02 at 10:03 a.m. in New York, according to Bloomberg. The Dow Jones Industrial Average was also doing well, trading 0.9 percent higher to reach to a new record of 15,636.53.

Strong jobs data
One factor that was cited as having an impact on the actions of global investors was jobless claims data released by the U.S. Department of Labor, the media outlet reported. This government agency indicated that during the prior week, these initial applications for unemployment benefits fell 326,000, which represented a decline of 19,000 from the 345,000 claims filed during the prior week. It was also the lowest level for these claims in five years.

In addition, economists taking part in a survey conducted by the news source predicted that the jobs report scheduled for release on August 2 will show that in July, the nation's employers added 185,000 new positions. Also, the 80 market experts who contributed to the poll estimated that during the month, the unemployment rate fell to 7.5 percent from the prior figure of 7.6 percent.

Impact of Fed
Another event that was cited in the continued appreciation of U.S. stocks was the announcement made by the Federal Open Market Committee at the end of its most recent meeting that it will continue to purchase bonds at its current rate of $85 billion every month, according to MarketWatch.

The plans that the Federal Reserve has for stimulus have been highly-visible in recent months, after Federal Reserve Chairman Ben Bernanke stated at the conclusion of the June FOMC meeting that the existing program of bond purchases could be gradually reduced starting as early as 2013, and eliminated completely next year.

Markets reacted violently to this communication, and the value of many different asset classes registered sharp declines after Bernanke said this. However, he seemed more conservative when testifying before Congress in July, at which point he stated that for stimulus to be reduced, key economic indicators would need to have a certain strength.

European Central Bank President Mario Draghi struck a similar tone in his view of the economy, as he stated that the interest rates set forth by this organization would be at low levels for some time, MarketWatch reported.

Michael Vogelzang, president and chief investment officer at Boston Advisors LLC, noted this need for continued stimulus when speaking with Bloomberg by phone.

"The tone from central banks is that the economy is a little better, but has not reached the escape velocity yet without monetary support." Vogelzang told the news source. "As long as there is strong accommodative policy, the market can go up a lot. The market is driven by Fed policy and good corporate earnings."

S&P and the Fed
Amid continued economic growth and robust monetary stimulus, the S&P 500 has surged more than 150 percent from its recent low in March 2009, the media outlet reported.

As a result of the record stimulus of the Federal Reserve, the central bank's balance sheet has risen past $3 trillion. In addition, the organization has kept its benchmark interest rates close to record lows for several years in an effort to stimulate lending activity.

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