The Dow Jones Industrial Average (DJIA) roared to an all-time high on Friday wrapping up a 4-day winning streak and shrugging off grim reports of government budget cuts that are expected to slow growth. The Dow rose 67 points on the day to close at 14,397 passing the previous record set in October 2007. While Wall Street\u2019s bulls claim that stocks are still underpriced and have further to go, wary traders are watching for any sign that the Fed is planning to end its easing operations (QE) which have flooded financial markets with $2 trillion of extra liquidity triggering an unprecedented 4-year stock rally. The markets are so addicted to the Fed\u2019s $85 billion per month liquidity injections, that even grumbling from dissenting members of the FOMC could spark a panic and send stocks into freefall. Here\u2019s more background from an article in the Wall Street Journal:<\/p>\n
\u201cMany give the Federal Reserve, and its latest asset-purchase program, much of the credit for the Dow Jones Industrial Average\u2019s rally to record highs. But some strategists feel that, as long as the economy continues to improve, the Dow\u2019s upward trend will continue, even if the Fed starts taking its foot off the liquidity pedal.<\/p>\n
The Fed has been creating liquidity via outright purchases of longer-term Treasury and mortgage-backed securities since the end of 2012. These purchases, known as quantitative easing, are aimed at stimulating economic activity by lowering longer-term Treasury yields and borrowing costs. Treasury yields move inversely to Treasury note prices\u2026<\/p>\n
Stock-price valuation is unlikely to be derailed by changes in Fed policy despite fears,\u201d said Tobias Levkovich, chief U.S. equity strategist at Citigroup\u2026<\/p>\n