sitox
The S&P 500 hit a new all-time high on Thursday.
This is the 22nd "all-time high" of the year.
There are several things to focus on.
First, the economy is doing well. On Friday, the figures for the fourth quarter of 2023. were revised upwards.
Second, enthusiasm for AI technology continues at a high level.
Third, at least one, if not two or three, cuts to the Federal Reserve's official interest rate are expected this year.
It is also worth noting that consumer confidence rose to its highest level in almost three years.
And there seems to be a lot of money out there.
If we analyze the monetary statistics of the Federal Reserve, despite the fact that the Federal Reserve has subjected the banking system to two years of quantitative adjustment, the monetary stock M2 has grown at a rate compound annual growth rate of 8.0 percent in the last four years.
In other words, the economic situation looks pretty good and this bodes well for future stock market gains.
The only issue that seems to persist is inflation.
The most recent inflation figures have come out higher than expected... or desired.
Federal Reserve Governor Chris Waller responded that there is "no rush" to reduce the Fed's official interest rate, given this recent information.
But the story is longer than this.
Look at how the S&P 500 stock index has performed over the past 18 months.
S&P 500 stock index (Federal Reserve)
The minimum reached by the S&P 500 in mid-October 2022 was 3,577 points.
On Thursday, March 28, 2024, the S&P 500 closed at 5,254.
This is a 46.9 percent gain...not too bad.
This is not a result that can be achieved in a market where investors were hungry for money, where an economy was entering a downturn or recession, or where there was nothing positive to hold on to.
And the positive news seems to keep coming.
In the 2010s, Federal Reserve Chairman Ben Bernanke launched the Fed with a new model for achieving economic growth with only modest inflation.
The model focused on a "new" approach to monetary policy... quantitative easing... or quantitative tightening.
This has been the basis of what is happening now.
Bernanke wanted to create an environment in which monetary policy would contribute to rising stock prices, which would, in turn, increase consumer wealth, which would, over time, support economic growth.
And there wouldn't be much, if any, to increase inflation.
Looking back over the past 15 years, the political structure Bernanke introduced appears to have worked.
And it seems to be working well now, even though we are going through a period of quantitative tightening.
The Federal Reserve, through quantitative easing, poured a lot of money into the economy. For the past two years, the Federal Reserve has been working cautiously to withdraw some of this money and control inflation.
This policy seems to be working very well.
Meanwhile, investors are benefiting from the effort as stock prices have been rising... and rising... and rising.
Wow!
An increase of 46.9 percent in two years.
The current chairman of the Federal Reserve, Jerome Powell, recently talked about reducing the amount of quantitative adjustment that is being applied.
But this is still in the future.
And, as Governor Waller, quoted above, stated, "there is no rush."
Still, the basis of the Federal Reserve's policy stance is what it is doing to reduce or increase the securities portfolio.
He doesn't want to move too fast. And what it is based on now is what is called "future orientation." Federal Reserve officials "talk" about what could happen in the future.
This helps set the tone for the markets.
And, in the roughly 15 years that the Fed has been running this program, the market...investors...seem to be showing a lot of "confidence" in what Fed officials are doing.
As a result, investors can expect more of the same in the future.
I think this is a very positive conclusion for the future of share prices.
