The Highest Returns Are Currently in the Money Market

Global stock prices rose last week for the fourth consecutive week, with the Dow Jones and S&P indices on Wall Street reaching new record levels, primarily due to the loose monetary policy of central banks.

The Dow Jones index rose 1.6 percent last week to 15,354 points, while the S&P 500 jumped 2 percent to 1,666 points, and the Nasdaq index increased by 1.8 percent to 3,498 points.

The new records of stock indices are attributed to investors’ confidence that the largest central banks in the world will continue to pursue a loose monetary policy as macroeconomic data does not indicate a self-sustaining recovery of economies.

The U.S. economy is in good, but not excellent shape, while the growth of the Chinese economy is slowing. Japan’s economy, on the other hand, grew slightly in the first quarter, while the eurozone continued its longest recession since the euro was introduced in 1999.

– Economic data is weaker than we expected, but there is no reason to sell stocks. The market is driven by the Fed, solid corporate earnings, and consumer confidence – says Michael Binger, portfolio manager at Gradient Investments. Investors are hoping that the stimulative monetary policy of the U.S. Fed and other major central banks in the world will accelerate the recovery.

– Developed countries around the world, from the U.S. through the eurozone to Japan, are aggressively loosening monetary policy, injecting fresh, cheap money into financial markets. This money seeks the highest returns, and currently finds them in the stock market – says Bucky Hellwig, vice president at BB&T Wealth Management. Bonds are currently unattractive to investors due to record-low interest rates, while significant growth in demand for commodities cannot be expected due to the weakness of economies, and therefore neither can their prices.

Midweek, investors were unsettled by John Williams, president of the Fed’s San Francisco branch, who said that the central bank could start reducing bond-buying programs by summer and possibly eliminate them entirely later in the year, as the situation in the U.S. labor market improves, which the central bank has set as its main goal.

Other Fed officials have also indicated that mortgage bond-buying programs could be eliminated, as the situation in the real estate market improves. The Fed’s bond-buying programs for government and mortgage bonds inject $85 billion a month into financial markets, which is the main reason for the strong rise in stock prices in recent months.

Since the beginning of the year, the Dow Jones has risen by 17.2 percent, while the S&P 500 has gained 16.8 percent, and the Nasdaq index has increased by 15.9 percent. Over time, central banks will have to start tightening monetary policy, but investors hope that this will not happen too soon so as not to disrupt the recovery of economies.

European stock prices also rose last week. The London FTSE index strengthened by 1.5 percent to 6,723 points, while the Frankfurt DAX rose by 1.4 percent to 8,398 points, the highest level in history, and the Paris CAC increased by 1.2 percent to 4,001 points. On the Tokyo Stock Exchange, the Nikkei index rose by 3.6 percent last week to 15,138 points, the highest level since December 2007.