S&P 500, QE, & FSMI (Excerpt)

Fed officials, particularly the dovish ones calling the shots, are clearly preparing the financial markets for the phasing out of QE. That was obviously the intent of NYFRB President Bill Dudley on Monday when he delivered a speech titled “The Economic Outlook and the Role of Monetary Policy.” He has been an early and leading advocate of QE. However, for the first time he talked about “dialing back” QE.

I believe that the bull market can survive the phasing out of QE if the US economy continues to strengthen, which is the only reason why the Fed would do so in the first place. A strong case can be made that the bull market of the past four years has been directly tied to the Fed’s purchases of fixed-income securities.

I have also related the bull market to our Fundamental Stock Market Indicator (FSMI), which continues to rise to new cyclical highs. We may be reaching an inflection point where bad news out of Europe and the prospects of less QE from the Fed aren’t bearish for stocks because the US economy is fundamentally sound, which is bullish for stocks. Yesterday’s fundamentally sound reports on durable goods orders and home prices helped boost stock prices. Enjoy your Spring Break! We will be back on Tuesday.

Today's Morning Briefing: Give Us Your Tired Rich. (1) Never mind. (2) The Dutch finance minister is new on the job. (3) Cyprus is very special to Russians. (4) Putin’s threat. (5) There will be repercussions. (6) The US dollar, stocks, and real estate are all safe havens for wealthy foreigners. (7) Dudley is ready to dial back. (8) Phasing out QE should be bullish for stocks. (9) Focus on S&P 500 housing-related industries. (More for subscribers.)