Tags: Stocks | party | over | stimulus

Experts: Despite Fed, ECB Stimulus Measures, Party Is Over for Stocks

Wednesday, 19 Sep 2012 09:43 AM

The Federal Reserve and European Central Bank (ECB) have taken fresh steps to stimulate their respective economies, but don’t expect stocks to rally like they have with previous monetary interventions, experts say.

The Fed announced plans to buy $40 billion in mortgage-backed securities a month until the economy and jobless rates improve, pumping the economy full of liquidity in a way that pushes down interest rates across the economy, sending stock rising in the process.

The Fed has rolled out such a policy tool — known as quantitative easing but dubbed by many as printing money out of thin air — twice before since the economic downturn.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

Meanwhile, the ECB has unveiled a program to buy sovereign debt in the open market to lower borrowing costs in debt-ridden countries.

Nice efforts, experts say, but until policymakers make fundamental improvements to their economies, don’t expect stocks to rally like they have in the past.

“Absent accommodative monetary policy, there is no reason to expect the market to be doing this well this year ... especially during the past few weeks,” said John Norris, managing director with Oakworth Capital Bank in Birmingham, Ala., according to CNNMoney.

Corporations have cut earnings forecasts, while in the United States, tax cuts expire at the end of the year at the same time automatic cuts to government spending kick in, a combination known as a fiscal cliff that could send the country sliding into recession if left unchecked by Congress.

Such uncertainty is preventing businesses from investing in new projects and hiring new employees.

In Europe, many periphery countries remain mired in recessions that have become exacerbated by austerity measures attached to rescue funding.

“The excess liquidity sloshing around is giving people a sense of comfort. It’s not the economy. It’s not earnings,” said Norris, who added that investors can only play that game for so long.

“People may not be in this market for the long haul.”

Other experts agree that any gains in stocks stemming from the Fed’s plans to juice the economy will be short-lived.

“We’ve had this recovery in the stock market but not really in the economy,” said Tyler Vernon, chief investment officer of Biltmore Capital, an investment adviser in Princeton, N.J., according to The Associated Press.

Stocks will likely fall within months, Vernon said, “when the same stories are coming out about the economy, when we start hearing the same old song of people dropping out of the workforce and unemployment staying high.”

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

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