Originally published by AxiTrader
Trying to sell the rally in US and European markets has been a favourite pastime of the bears recently. But these operations, the raising of risks, the worrying about fears has fallen on deaf ears as stocks have ground relentlessly higher.
It doesn't mean the risk around valuation, the economy, and earnings are without merit. It's simply that the market continues to buy dips and take prices higher.
In no small measure, it's because earnings season was so solid with US corporates reporting year on year growth of more than 15%. That was the strongest growth rate since 2011. Revenue growth is likewise strong as FactSet tweeted earlier today.
And readers know that I have a view - based on monthly charts and so prone to a long topping period - that the peak ion the S&P 500 is likely to be in this 2,400/2,450 zone.
But in thinking about why the market keeps powering on over recent weeks I came to the conclusion that unless or until the globe's big central banks start to unwind the massive stimulus and free money they have pumped into the global financial system stocks can remain well bid.
So I was quick to spot a tweet from Jonathan Tepper this morning of the relationship between the balance sheet growth of the Fed, BoJ, ECB and PBoC and the S&P 500 over recent years.
I'm comfortable with the correlation and causality of this relationship.
The ECB and BoJ have signalled they are from reducing their balance sheet. Indeed each is still actively injecting cash into the global financial system. But as the ECB eventually moves toward tapering and with the Fed signalling that it will begin to unwind its $4.5 trillion balance sheet this year we may start to see the cracks appear in this very aged global bull market for stocks.
Time will tell and the economy is important ultimately. But the flow of free money from central banks has been a key driver in the post-crisis recovery in stocks. It's something for us all to keep an eye on.
Have a great day's trading.