The S&P 500 stock index has now gone well over three years without experiencing even a 10% correction, despite the fact that these pullbacks have occurred an average of once per year since 1928. This is this the fifth longest such streak since 1950.
“The economy has got good momentum,” said Michelle Girard, chief U.S. economist at RBS Securities Inc. in Stamford, Connecticut. “The second half of the year is going to look a good deal better than the first half.”
Even after five years of the Fed’s most aggressive accommodative policy in history, there is still a lack of hoped for quality credit creation in the economy, which could be a sign that the greatest deleveraging of the U.S. economy since the Great Depression is still not complete. The Fed’s unrelenting dovish policy appears to support this concern.
In December the Federal Reserve saw enough evidence of economic strength to begin tapering its Quantitative Easing (QE3) program and markets are adjusting to this new reality. So far it has been a tough pill to swallow with emerging markets being the first to feel the pains of withdrawal.