Money Spurring U.S. Stock Gains Seen as Ample: Chart of the Day

U.S. stocks are unlikely to drop much more even as the Federal Reserve stops buying bonds because there’s more than enough money available, according to Brian Belski, Oppenheimer & Co.’s chief investment strategist.

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Money Spurring U.S. Stock Gains Seen as Ample: Chart of the Day

By David Wilson, Bloomberg
07 June 2011

U.S. stocks are unlikely to drop much more even as the Federal Reserve stops buying bonds because there’s more than enough money available, according to Brian Belski, Oppenheimer & Co.’s chief investment strategist.

The CHART OF THE DAY compares the Standard & Poor’s 500 Index with the M2 money-supply gauge since 1961, as Belski did yesterday in a report. M2 consists largely of currency held by the public and balances in checking and savings accounts.

“There’s plenty of money in the system,” the report said, noting that M2 climbed at a 6.9 percent compound annual rate since 1950. The increase is in line with the comparable figure for the S&P 500, 6.4 percent a year.

Any pullback by the Fed “shouldn’t mean stocks will suffer longer term,” Belski wrote. This month brings the scheduled end of QE2 -- the central bank’s second round of bond purchases, or quantitative easing.

What’s holding back the stock market and the economy is “a general lack of sustainable confidence,” rather than a lack of money, he wrote. “Summer will likely set the stage for a fits-and-starts market for the remainder of 2011.”

Belski recommended that investors give more weight to industrial and technology stocks than the S&P 500 does. The groups account for 12 percent and 20 percent of the index’s value, respectively.

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