It remains my view (and apparently that of the San Francisco Fed) that quantitative easing is losing its effectiveness and that, over time, QE has done less than expected by the Fed. In essence (and with the benefit of hindsight), QE lifted asset prices, but the sensitivity of economic growth to the rise in stock prices was weaker than it forecast, as the decline in the velocity of money has offset the growth in the money supply. There are many reasons for this, including the private sector's deleveraging, a loss of business confidence and rather than lending out the liqudity that was provided by the Fed, the banking industry has increased its excess reserves.
After several years of quantitative easing and little growth to show for it, we are left with the question as to whether the U.S. is in a (light) liquidity trap that will lead to slowing and disappointing domestic economic growth and a challenge to corporate profits. If we are (and I believe it to be the case), the outlook for equities is much more negative than many suggest. At the very least, this consideration/threat forms the basis for a lengthy period of market consolidation and underscores the likelihood that the U.S. stock market has topped for the year.