The Stock-Market Rally Won't Last Without Some Help

This month marks the 10th anniversary of the beginning of the global financial crisis that set off the Great Recession. What the then-Federal Reserve Chairman Ben Bernanke had characterized as a mere “$50 billion problem” morphed into a plunge in equity values with investors losing trillions of dollars, and a recession that caused unemployment to peak at 10 percent in October 2009.

What have we learned a decade later? We found that as the Fed increased its holdings of bonds to $4.5 trillion -- more than five times the level at the onset of the financial crisis -- the additional liquidity boosted the financial markets to new heights. The Standard & Poor’s 500 Index, which bottomed out at an intraday low of 667 in March 2009, now trades at about 2,445. The 10-year U.S. Treasury yield, which some analysts had repeatedly predicted would surge to as much as 4 percent, is still well below the 2.5 percent mark. Equity multiples have risen with stock prices. For example, the S&P 500, which traded in November 2008 at just 11 times its trailing 12-month earnings, now trades at about 21 times.