Stocks have catapulted through the recovery.
Among the things that have driven the expansion, a key factor has been the role of the Federal Reserve.
In market commentary Wednesday, Blackstone’s Byron Wien pegs a number on this: $3 trillion.
Even though we’ve seen company earnings more than double between 2009 and 2014, there has been concern that the market rally has largely been driven by so-called easy money the Fed supplied through its bond-buying program, or quantitative easing.
Wien quantifies its contribution:
It took the Fed 95 years to build up a balance sheet of $1 trillion and only six years to go from there to the present level. The Federal Reserve was providing this stimulus to improve the growth of the economy, but it is my view that three quarters of the money injected into the system through the purchase of bonds went into financial assets pushing stock prices up and keeping yields low. If I am right, the Fed contributed almost $3 trillion (some may have gone into bonds) to the $13 trillion rise in the stock market appreciation from the 2009 low to the current level, earnings increases explained $9 trillion (1.5 x $6 trillion) and other factors accounted for $1 trillion. You could argue that the monetary stimulus financed the multiple expansion in this cycle.
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