Thursday, September 19, 2013

Stocks, QE, & Buybacks (excerpt)

Stock investors have become very addicted to QE. Everyone has been tracking the close relationship between the S&P 500 and the Fed’s holdings of securities since the start of the bull market in early 2009. The bears have been warning that if and when the Fed starts to taper QE and terminate it, the bull market will be terminated as well.

While the S&P 500 has been highly correlated with the Fed’s purchases of US Treasury and mortgage-backed securities, it has also been highly correlated with the sum of share buybacks and dividends paid by S&P 500 companies. The bears have been saying that the bull market has been a “sugar high” with no obvious buyers. Fed Chairman Ben Bernanke has been the sugar man, injecting the sweetener into stock prices with his ultra-easy monetary policies, especially QE.

The bears failed to either notice or acknowledge the huge injections of cash into the stock market by corporations. From Q1-2009 through Q2-2013, S&P 500 companies repurchased $1.5 trillion of their shares and paid out $1.1 trillion in dividends for a grand total of $2.6 trillion.

The Fed has pulled back from tapering QE for now, while corporations continue to announce lots of share buybacks and higher dividend payments. Life is good.

Today's Morning Briefing: Pullback & Buybacks. (1) The Fed and Providence. (2) Ben Bernanke and Emily Litella. (3) Back to QE-forever? (4) Fed adds fuel to the melt-up scenario. (5) Pay no attention to the Fed’s talking heads. (6) Transparency can be opaque. (7) Addicted to QE, but driven by corporate buybacks. (8) Life is good. (9) Focus on S&P 500 overweight-rated housing-related industries. (More for subscribers.)

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