A lot of stock indexes seem to be steeply increasing in price in the last couple of years. For example S&P500 but also lesser known indexes like ATX.

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Is this the more or less direct result of quantitative easing? Is it also a result of low interest rates?

Will this trend end, once world banks decide to increase interest and stop quantitative easing?

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    Nobody knows. Calls for speculation. Dec 16, 2017 at 15:39
  • That chart has serious issues. You really need to plot it on a log graph and it'll make a lot more sense. Dec 17, 2017 at 4:34

2 Answers 2


Is this the more or less direct result of quantitative easing?


(EDIT: and all that 401(k) and IRA money needing somewhere to go.)

Is it also a result of low interest rates?

That's what QE is.

EDIT: https://www.investopedia.com/terms/q/quantitative-easing.asp "Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply."

Will this trend end, once world banks decide to increase interest and stop quantitative easing?

Central banks determine whether or not to quantitatively ease, not some nebulously defined "world" banks.

Note, though, that this latest run has the exact same slope as the previous two runs.

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    QE is not the same as lowering interest rates. en.m.wikipedia.org/wiki/Quantitative_easing Dec 16, 2017 at 15:35
  • @ChrisW.Rea QE is a method used to lower interest rates, by increasing the money supply. I added a citation.
    – RonJohn
    Dec 16, 2017 at 15:55
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    @user1721135 it tells us that QE isn't the only driver of stock market rallies.
    – RonJohn
    Dec 16, 2017 at 20:28
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    QE is definitely not the sole driver of stocks, there is never a single factor or single story. The problem with comparing historical stock returns in different periods is totally different circumstances. Even if monetary policy was exactly the same in the 2000's as now, the financial industry is totally different, regulatory environment different, technology plays a role (rise of quant trading) and many other things are different now vs. 10 years ago. So I would consider the similar slope a coincidence, and on a shorter period chart it may look less similar.
    – Petr H
    Dec 16, 2017 at 20:46
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    @RonJohn One thing is certain - all good rallies come to an end, at some point. Often the initial trigger is something noone had thought of before it happened. That said, a correction or "crash" might actually not be such a bad thing. It would remind people (those who have forgotten or weren't around the last time) that asset prices can go both ways and one should also fear other things than missing out on a rally.
    – Petr H
    Dec 16, 2017 at 22:40

QE = more demand, pushes interest rates down and prices of bonds (or whatever the central banks buy) up. This translates to higher prices of other assets (even those not directly purchased by the central banks), because as bond prices get high and yields low as a result of QE purchases, investors chasing yield start looking for other alternatives and are willing to accept higher risk and/or lower return, because they simply have to put the money somewhere.

This affects all investable assets, including high yield debt, stocks, real estate, alternatives, art etc. The very idea of QE is to encourage risk taking in the economy and "make the money move", and it seems to work. Higher asset prices are a result of both QE and the policy interest rates (these tools are being used together with the same goal in mind, and it's hard to attribute it to each with some percentage).

Will this trend end once central banks stop and reverse their QE policies - most likely yes, because you can't trick supply and demand. Reverse QE = more supply, rates up, prices down.

The harder question is when it will happen, and knowing that could make one extremely rich. It appears central bankers are aware of the risks and take their time. Normally in this phase of economic cycle you would see policy interest rates much higher than where they are now.

Another possibility is that the trend reverses before CBs reverse QE, due to some other external shock. A single factor (such as QE) never acts in isolation. There will always be many other things affecting the markets - like oil price or politics, for example.

  • Reverse QE already is happening in the USA no? Dec 16, 2017 at 20:07
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    Technically in the US yes, but relative to the total size it is nothing (10bn/month vs. trillions of holdings), and others are still buying (ECB will only cut purchases from 60 to 30bn EUR in January). Net global QE is still going on and doesn't seem to reverse any time soon.
    – Petr H
    Dec 16, 2017 at 20:36
  • So would you ecpect a noticable "correction" in trend because of this slowing down (but not stopping)? Dec 16, 2017 at 21:10
  • I don't expect or predict anything (I would be wrong anyway). You can find many reasons for stocks to continue rising, as well as for a "correction". US monetary policy will be an important risk factor for stock prices in 2018, but there are many other factors, positive and negative.
    – Petr H
    Dec 16, 2017 at 21:42

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