{"id":3183,"date":"2011-03-11T16:37:47","date_gmt":"2011-03-11T16:37:47","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=3183"},"modified":"2025-03-27T15:49:13","modified_gmt":"2025-03-27T15:49:13","slug":"will-fed-liquidity-stave-off-equity-weakness","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=3183","title":{"rendered":"Will Fed liquidity stave off equity weakness?"},"content":{"rendered":"

Based on yesterday’s close of 11,985, the Dow Industrials index has fallen 3% from a peak on 18 February but is still 7% above the “six-bear average” path derived from recoveries after prior large declines – see first chart and previous post<\/a> for more details.<\/p>\n

The six-bear average has proved a reasonable guide to the trend in the Dow since the March 2009 trough. The average fluctuates between 11,100 and 11,600 until the autumn, when it slips below 11,000.<\/p>\n

Examining the individual components, five of the six prior recoveries suggest a fall from the current level by year-end – see green lines in first chart. In one case, however, the Dow embarked on a final blow-off to a level equivalent to 16,000 currently – top line. (This refers to the rise from the bear market low in November 1903.)<\/p>\n

As previously discussed<\/a>, monetary trends are signalling a peak in global growth this spring. Momentum peaks are often associated with weakness in risk assets, including equities. G7 annual real narrow money growth, moreover, remains below industrial output expansion, a condition historically associated with sub-par equity returns. These considerations support the cautious message from the six-bear average, suggesting a defensive investment stance.<\/p>\n

A short-term spurt higher, however, cannot be ruled out, based on the ongoing injection of liquidity by the US authorities. Banks’ reserves at the Federal Reserve rose by a further $66 billion to $1.36 trillion in the week to Wednesday and are on course to reach $1.7 trillion, or more than 11% of GDP, by mid year, assuming that the Fed completes QE2 and the “supplementary financing program” is reduced to $5 billion and remains at this level. Bears, therefore, may wish to keep positions light until the Fed’s liquidity boost is nearer completion.<\/p>\n

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Based on yesterday’s close of 11,985, the Dow Industrials index has fallen 3% from a peak on 18 February but is still 7% above the “six-bear average” path derived from recoveries after prior large declines – see first chart and previous post for more details. The six-bear average has proved a reasonable guide to the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-3183","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3183","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3183"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3183\/revisions"}],"predecessor-version":[{"id":5492,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3183\/revisions\/5492"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3183"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3183"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3183"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}