Stock Market Investments And The End Of QE
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The big question surrounding the summer is the ending of QE2 and how it will affect the stock market. That stands for quantitative easing round 2. This is where the US Federal Reserve is basically printing money to put into the system. This is in an effort to create liquidity in the market to foster an environment where businesses will expand and create jobs.
This policy is about to come to an end and investors are scrambling for good stocks to play this with. Really, since this is a macro play, you should be using index funds with broad stock market exposure.
The big question is whether quantitative easing will end. Basically, this was meant to get investors to put money in risk-on assets, essentially the stock market instead of in bonds. They made it so that bond investors would not see very much of a return. So as long as the QE continues, investors will be encouraged to invest in stocks.
So basically, you have to predict what the Federal Reserve will do. Will they continue QE2 or will they end it? If they end it, will they do some other kind of policy to encourage investors to stay in equities? Those are questions you have to answer as a stock market investor.
Right now, it seems like most investors don’t believe the Fed will let the stock market go down. Whether you like it or not, the stock market gives confidence and fuel to the economy. It’s sort of a codependent relationship. Stocks are a leading indicator for the economy, but the economy needs equities to do well to keep investing. It’s kind of like a crazy cycle.
In any case, everyone’s eyes and ears are on Ben Bernanke to find out what he will do next. The stocks will move in one accord depending on what he does next.
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