Amid constant reminders of the risks to the outlook and all that can go wrong, Wall Street has been defying expectations with a bull market supported by an economy where prospects are looking up. In spite of a loss of earnings momentum and poor pre-announcements ahead of the forthcoming corporate results for first quarter 2012, the S&P 500 reached a new-post financial crisis high this week. If that is not positive, what is?
For a while now, our focus has been on three supportive features for equity markets.
One is the steadier and more solid look to the US recovery. The trends for both employment and bank credit have been moving in the right direction for a number of months and, as the latest FOMC Minutes suggest, the case for additional policy easing is diminishing. Mr Bernanke continues to champion the Fed’s existing ‘super easy’ monetary policy but the line being drawn between the hawks and the doves is coming more sharply into focus.
This is not to say that the FOMC’s forward guidance on policy will alter anytime soon. The labour market remains a critical influence and to quote from the latest Minutes, “... almost all members saw the unemployment rate as still elevated relative to levels that they viewed as consistent with the Committee’s mandate over the longer run.” More >