U.S. stocks are tracking a surge in the Federal Reserve’s assets too closely for comfort, according to Albert Edwards, a global strategist at Societe Generale.
The CHART OF THE DAY compares the Standard & Poor’s 500 Index with the total assets held by the Fed since stocks began their current bull market about two years ago. Edwards included a similar chart today in a report.
Yesterday’s close for the S&P 500 was 97 percent above its low on March 9, 2009. The central bank’s holdings of Treasury securities, mortgage-related debt and other investments rose during the period by 34 percent to a record $2.55 trillion.
Two rounds of bond purchases, known as quantitative easing, were largely responsible for the jump in Fed assets. The buying also pushed stocks higher, contributing to an economic recovery, Edwards wrote.
“We will see whether this patient can keep up its frenetic Irish jig in the absence of extreme stimulants,” he wrote. The second round of quantitative easing, totaling $600 billion, is due to end in June.
Bill Gross, Pacific Investment Management Co.’s co-chief investment officer, wrote this week that share prices and bond yields “are resting on an artificial foundation” built by the Fed’s debt purchases. An end to the easing is likely to hurt stocks and lift yields, he wrote in a monthly commentary.
(To save a copy of the chart, click here.)