Throughout 2013, quantitative easing , regardless of whether the economic data were strong or weak, was, similar to how New York Yankees ballplayer Reggie Jackson described himself -- that is, the straw that stirred the drink of equities.
QE, for the fifth consecutive year, has provided a stock market put and has also prevented the natural discovery of prices in both the stock and bond markets.On Wednesday, the message was that the U.S. stock market will be able to overcome the reduction in bond buying in 2014 and that the inevitable rise in interest rates is already discounted by market participants. The critical questions for 2014 are whether the domestic economy can handle a climb in interest rates that will be the byproduct of slowing quantitative easing and whether stocks can rally in the face of a lessened pace of bond purchases. I continue to be of the view that the addiction to low interest rates runs deep with consumers, corporations in the private sector and our government in terms of financing the U.S. deficit, and it will weigh on optimistic growth expectations and the consensus view that stocks will rise further. The domestic economy is heavily doped up by abnormally low interest rates and monetary accommodation. Because of our inept and divided leaders in Washington, D.C., the shoulders of monetary policy (the Fed) have been needed to support growth in our domestic economy. With that monetary support moderating coupled with the lack of fiscal responsibility and the inability of Democrats and Republicans to come together, more uncertainty than less certainty of policy lies ahead. This should be valuation-deflating. I strongly suspect that a withdrawal from the interest rate addiction and a seamless transition ("Goldilocks") toward more normalized long-term interest rates will result in renewed pressures on economic and corporate profit growth and lower equity prices.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV