Bull market: Temper enthusiasm about subsidized stock market
Why it matters: Betting on a stock market and economy with questionable foundations can be dangerous to consumers and business.
Americans aren’t complaining that their 401K balances are decidedly to the positive in the last nine years. Nor should they. We all deserve a little good news.
But headlines that by the end of the day today, without a calamity, the stock market will set a record for the longest bull market should be considered with skepticism. The bull market started in March 2009 and has steadily moved forward with few significant setbacks.
But a closer look at the market’s success suggest some one-time, non-market factors supported those stock prices.
For several years after the 2008 recession, the Federal Reserve Board engaged in what was called “quantitative easing” - a strategy under which the central bank bought government securities, thereby lowering their price. This encouraged investors to buy stocks instead. It also lowered interest rates, making business borrowing cheaper and increased the money supply, making loans more available.
But that came at a price. Buying all those securities boosted Fed assets from $900 billion in 2009 to about $4.5 trillion, even though it discontinued buying securities in 2014. The central bank quadrupled its assets with securities born of a shaky economy. That’s a risk.