Is Fed Action Fueling the S&P?
October 10th, 2006 by Stephen RomanCheck out the chart and analysis from Lee Adler at The Wall Street Examiner pointed out by http://www.agorafinancial.com/ :
The level and direction of stock prices has correlated closely with the level of the Fed’s system open market account. The market sometimes gets ahead of the Fed, or it can lag behind from time to time, based on investors’ liquidity preferences, but it tends to move in the direction of the SOMA, with varying lead or lag times. The market follows the Fed not in terms of rate targets, but in terms of the amount of liquidity the Fed pumps into the financial markets through its daily open market operations. Over the last two years, the Fed has kept the SOMA growing at an annual rate of around 5.35%, with only seasonal exceptions for year-end pumping parties. Stock prices have risen at a similar rate. Since the 2004 high on Jan. 26, 2004, the stock market’s total percentage gain has been virtually the same as the percentage gain in the SOMA.
Coincidence? I’ll let you look at the chart below and decide for yourself:
(Click on chart for larger version)
Posted: October 10th, 2006 under General.
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