“Santa Claus rally” is a stock market slang term that the highly-caffeinated fellows on Wall Street like to throw around this time of year, but the jolly bearded fat man who delivered Wednesday’s big gains was Ben Bernanke.
The out-going Federal Reserve Chairman has been very generous to the stock markets during his long reign, having printed up so many billions of dollars of that had nowhere to go in a zero-interest economy but Wall Street, and his parting gift was an announcement that the printing presses will now slow a bit. This might seem at first glance a veritable lump of coal to investors who have become addicted to the Fed’s unprecedented “quantitative easing,” but the stock market responded by pushing the Dow Jones Industrial Average up an impressive 293 points to a new record close.
Most of the media, who occasionally take time out from bashing those greedy Wall Street fat cats to tout their obscene profits as proof of a roaring economy, at least when there’s a Democrat in the White House, saw the gains as a reason to declare that happy days are here again. The Fed is “tapering” its money-printing because of recent encouraging economic data, the media helpfully explain, and the markets are now responding to same hopeful signs of growth. This beats writing stories about the record number of workers who remain out of the labor force, and there might even be some truth to it, but the good news seems wildly overstated.
Although the Fed will cut back on its bond purchases by $10 billion a month, it still believes that the economy is wobbly enough to require a $75 billion monthly infusion of freshly-printed cash. This is still a huge amount of monthly money even by Washington standards, and the more likely explanation for Wednesday’s big jump was the market’s relief that it will likely keep coming when incoming Fed Chairwoman Janet Yellen takes over. A 7 percent unemployment rate and the best year for housing starts since the immediate aftermath of the catastrophic popping of the last housing bubble might be good news by recent standards, but it’s hardly a reason for the record highs on the stock market.
— Bud Norman