Following this morning's dismal Empire manufacturing 'growth' data (which generated zero impact in equity futures thanks to QEternity 'policy' having dampened the market's beta to any and every macro data points) we note Morgan Stanley's findings that while monetary policy can provide a temporary boost to valuations (driving investors quickly into higher beta and into value over growth), in fact over medium-term horizons (i.e. more than a week or two), it is in fact growth that dominates the drivers of equity performance. Since growth in our advanced 'new normal' economy means debt (and realistically has meant more debt for over 30 years), and with even the most exuberant of Fed heads seeing only modest growth over the next few years, perhaps the hubris of the last few days in the equity markets will dissolve into reality sooner than everyone hopes (i.e. before November) as the realization of Koo's impotent Fed comes to pass and the fiscal cliff remains unresolved.
QE has been effective at (temporarily) lifting multiples (though it seems QEternity has been well priced in already)...
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and also in the way previous QEs have seen rushes into high-beta - we have also seen that 'priced in' also..
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but the bottom line is growth - and as is clear - the market is much more correlated to growth than policy...
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and that growth doesn't look like its coming anytime soon.
Source: Morgan Stanley