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The US Federal Reserve has maintained its policy of injecting $85 billion on a monthly basis, and although these funds have been directed at the debt markets the vast majority have found their way into equities. For the year to date, the US has pumped in $850 billion. It is debatable how much higher this has forced equity markets, but one thing is certain: it has given equity traders the confidence to predominantly maintain a buy-on-dip mentality, secure in the knowledge that there is a safety net below them.
At the end of the first six months of the year there was a growing feeling, in view of the general health of the US markets, that the Fed would announce an initial reduction of its monthly stimulus package. However, before this could happen, along came the deadline for the US government, Senate and Congress to agree a policy for the nation’s budget and impending debt ceiling. This caused such disruption to the economy and confidence that the chances of tapering happening in 2013 have greatly reduced.
Focusing on the US and European markets, we can see that investors have been rewarded with both an income and capital return as the troubles of 2009 fade into the distance.