End of QE May Not be Bane for Stocks
Last week, Janet Yellen, the head of the Federal Reserve, announced that the Fed has ended its six year quantitative easing program. QE has played a key role in driving stock market prices since the financial crisis. Many experts feared that the stock market would collapse after the Fed decided to end the program, but the Dow is still gaining value. There are a number of reasons that a stock market correction doesnâ€™t appear to be on the horizon.
Why the Stock Market is Still Gaining Ground
A number of deficit hawks and permabears have had very strong opinions of the quantitative easing since it was initiated by Yellenâ€™s predecessor, Ben Bernanke. They warned that pumping massive amounts of money into the economy would lead to hyperinflation as the dollar began to fall. They also claimed that the quantitative easing program would create bubbles in the financial markets, which would destabilize the economy after they burst.
However, none of these problems came to pass. The quantitative easing program hasnâ€™t led to serious inflationary problems. In fact, economists are worried that inflation is actually too low, because it has been below 2% for the past two years.
There also donâ€™t appear to be any serious signs that quantitative easing is creating a bubble. The International Monetary Fund warned that some foreign financial markets are exhibiting signs of bubbles, but didnâ€™t list the U.S. equities market. Investors should be more concerned about a slowdown in the Chinese economy than a United States stock market crash.
The stock market is likely to gain ground as long as the economy remains strong. The most recent GDP report showed that the economy expanded 3.5% in the third quarter. The job market has also been strong, which is encouraging for the economy.
Major Stock Market Crash Doesnâ€™t Seem Imminent
The stock market has been growing slowly during 2014, but most experts agree that there arenâ€™t any signs that it will experience a catastrophic crash. The end of quantitative easing doesnâ€™t seem to be changing that. The market is probably due for a correction at some point, but it isnâ€™t something that investors should be alarmed about and probably wonâ€™t reflect on the end of the six-year economic stimulus program.
Investors should remain bullish and try to add new stocks to their portfolios. Tools such asÂ TrendsInvesting.com will help them make informed decisions that will allow them to manage their portfolios prudently in the years to come.