Market Watch: Central Banks' Money Printing Buoys Stocks, But For How Much Longer?

February 04, 2020

Article by Nigam Arora in Market Watch

In a bid to support its stock market amid the coronavirus outbreak, China has cut reverse repo rates and injected massive liquidity. None of this helped the Chinese stock market from a rout. However, it has buoyed the stock market in the U.S.

There are expectations that China will inject even more money into the financial system. If that is not enough, there is speculation of more money printing by central banks across the world. There is even talk of an interest-rate cut by the U.S. Federal Reserve.

Can money printing reverse the economic damage from the coronavirus? Can money printing continue to take stocks to new highs? Let’s explore with the help of two charts.

Note the following:

• The chart shows a dramatic rise in the Federal Reserve’s assets since last year.

• Since the Fed started printing more money, the U.S. stock market has risen in lockstep with the Fed’s balance sheet.

The conclusion is unmistakable that the money the Fed is printing is going into stocks, especially in large-cap stocks such as Apple Amazon and Microsoft.

• In theory, the stock market should have fallen to the support zone on the news of the coronavirus. But the stock market has held up because of the general belief that central banks will print more money or engage in other ways to inject liquidity in the markets.

To read this article in Market Watch in full and view the relating charts, click here.

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