Stocks pushed higher amid speculation that Fed will be slow in reducing QE

TradingPub Admin | May 15, 2013

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A perfect example of stock trading education on how the value of these equities are impacted by the release of news, and how this information impacts investor sentiment, is the reaction that market participants had to speculation that the Federal Reserve will not be hasty in cutting back on its existing stimulus policies.

Rising stocks
The benchmark S&P 500 Index had a good day, rising 0.5 percent to close at 1,658.78 at 4 p.m. in New York and setting a new record, according to Bloomberg. During the 10 most recent trading sessions, the key group of stocks has surged to a new high during nine separate days. The Dow Jones Industrial Average also had a strong session, finishing trading 0.4 percent higher.

Financial stocks were a major contributor to the rally, as American Express and JPMorgan Chase displayed substantial gains, CNN Money reports.

Of the 10 groups that are contained in the S&P 500 Index, nine rose in value, according to Bloomberg. WalMart surged 1.4 percent to reach $79.86, while Proctor & Gamble rose 1.5 percent to $80.68. There was a 1 percent increase in the shares of firms that produce consumer staples such as household products, food and beverages.

Market resilience
It is important to note that even though a recent report indicated that manufacturing activity declined in New York during May, this information was not enough to motivate global market participants to push stocks lower, Reuters reports.

"It's disconcerting that the data was so much lower than what we were looking for, but there's no reason for investors to sell," Michael Binger, senior portfolio manager at Minneapolis-based Gradient Investments, told the news source. "The main things driving the market - the Fed, earnings, consumer confidence - are holding up, and people put money in the market on any down day. I still see a lot of value."

Bull market and the Federal Reserve
Since reaching its recent low in March 2009, the S&P 500 Index has surged 145 percent, which has largely been supported by the quantitative easing of the Federal Reserve, as well as strong corporate earnings, according to Bloomberg. As a result of the continued appreciation, the bull market is now in its fifth year. 

"The global economic outlook gives some support to the idea that more easing is on its way, especially with soft inflation," Oliver Pursche, who serves as both co-manager of the GMG Defensive Beta Fund and president of Suffern, New York-based Gary Goldberg Financial Services, told the news source during a telephone conversation. The firm manages about $650 million. "It would be surprising if there was a meaningful and prolonged pullback at this point."

On May 15, the Dow reached a new intraday high of more than 15,301, according to Reuters. The S&P also reached an intraday high, surging to more than 1,661.

At a recent meeting of the Federal Open Market Committee, which happened on the last day in April and the first day in May, these members discussed whether or not they should either step up the Federal Reserve's existing bond-buying measures, or reduce them, Bloomberg reports. Depending on what inflation and the labor market look like going forward, they might be willing to bolster the existing program of $85 billion in asset purchases that are made every month.

Over the last several years, the U.S. central bank has expanded its balance sheet significantly, increasing it to more than $3 trillion in an effort to stimulate the economy.

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