How Much More Upside Is There? [S&P 500 and Dow hit new highs once again on jobs report]

Zero Hedge ^ | 06/06/2014 | Tyler Durden

[SeekAndFind]

For 5 years the correlation between the expansion of the Federal Reserve's balance sheet and the growth of the S&P 500 has risen dramatically. Since QE3 was unveiled, the correlation is converging on 1 which of course is just happy coincidence and nothing to do with the free and easy flow of liquidity that month after month of Fed largesse has created. The problem is we now know that the hurdles to a Fed un-Taper are very high and so we can extrapolate the end-point for the Fed's balance sheet and where stocks would trade at that point. The S&P 500's recent exuberance has priced in the total expansion of the Fed's balance sheet to the end of the taper, so how much more upside is there?

 

Coincidence...?

 

Perhaps not...

 

And close-up... we have priced in the rest of the Fed's balance sheet expansion to the end of the Taper... The S&P is actually around 20-25 points rich to the current levels of the Fed's balance sheet

 

Dont forget, tapering is not tightening... though it looks a lot like it will be...

Taper Tightening Update pic.twitter.com/WimuPnAEsg

— Not Jim Cramer (@Not_Jim_Cramer) May 30, 2014

As Jeff Gundlach recently opined...

What troubles me the most psychologically in the markets right now is this logic that as long as there is Quantitative Easing, stocks will go up.

 

And if the Federal Reserve drops Quantitative Easing, stocks will go up, too, because it means the economy is strong.

 

It makes me wonder.

But then again, Fed's Williams confirmed last night...

The Fed must blow bubbles because otherwise irrational investors get "carried away" and inevitably crash the markets...

 

Ultimately it seems clearer and clearer that, as Williams himself opines "financial stability is just as important as pursuing price stability and growth."

So prepare for QExxx

[Arm_Bears]

The markets will continue to climb for as long as Obama remains in the White House.

After that, watch out.

[sten]

how much upside? depends....

how small would you like to make the dollar?

[kearnyirish2]

“how much upside? depends....

how small would you like to make the dollar?”

Yes; and how many more jobs can we export? Companies’ stocks soar when they announce layoffs of American workers...

[sten]

increased stock price is a sign of investor confidence that the company will be around and will potentially do well

as 0bama and the fedgov continue to shrink the dollar, companies get less and less for the same dollar. this forces them to take steps to reduce costs... or go out of business. without action, investors fear the company will crater and may look for the exits.

when a company announces it’s moving production offshore, it’s a sign to investors that they may be around longer and better able to compete in the face of the ever shrinking dollar (due to fedgov/progressive interference)

this, in turn, increases confidence which results in higher prices.

it’s a very predictable cycle... but one whose origin (fedgov) is often missed

[kearnyirish2]

“it’s a very predictable cycle... but one whose origin (fedgov) is often missed”

I don’t lay that at the feet of the government; the export of jobs has gone on for decades for the simple reason that Asian coolies cost less than American workers. Once a company can reduce labor costs by moving the jobs, then the bottom line improves. What has changed in the last dozen or so years are how many MORE jobs can be moved due to the internet; instead of just call centers, companies in the US (I won’t call them “American companies”) now have access to Asia’s white-collar workers as well.

I miss the Cold War...