If you’re puzzled by the magnitude of the stock market correction since late December, you can thank the central banks for the rally. Yes, that’s correct… after the Dow Jones suffered the worst Christmas Eve trading day ever, the massive central bank monetary liquidity helped push the index up 20% from its low over the next two months.
Of course, the markets were due for a reversal as nothing goes down in a straight line, but to see the sort of buying in the face of negative economic news and lack-luster earnings means that the inevitable CRASH will be even bigger when it finally arrives.
Now, according to the article, Back To Fundamentals, Daniel Lacalle stated the following in regards to the markets:
“In 2018 we saw the first drop in global liquidity in more than a decade, and that generated significant losses in financial markets. Since the end of December stock markets have rebounded strongly because the data, although poor, is not as bad as feared, and mainly because the Federal Reserve changed its tone on the number of rate hikes, the ECB announced that it would be much more accommodative and the Central Bank of China introduced the largest injection of liquidity in five years.
“In fact, between December 26 and February 15 we have seen the largest injection of liquidity in the markets of the last two years, bringing the global money supply to record levels.”
The two key points stated above were that a drop in global liquidity in 2018 generated significant losses in the financial markets and the largest injection of global liquidity from December 26 to February 15th brought the money supply to a record level and pushed global stock markets back higher. This can be clearly seen in Lacalle’s charts:
Thus as the global money supply jumped by more than $3 trillion within two months, the global stock markets enjoyed one hell of a rally. But, how far can money printing go if the fundaments are lacking? Well, that’s a good question. Now, if we look at another chart comparing the S&P 500 to forward earnings per share, we can see another fundamental disconnect.
Read the full article at SRSrocco Report: Insane Stock Market Rally Due to Massive Global Monetary Liquidity | SRSrocco Report