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Stocks Tracked Riskier Assets Higher Amid QE

Stocks generated strong returns in the last few years, as both these equities and other riskier assets were bolstered by quantitative easing (QE) and the resulting environment of low interest rates.

While these securities were pushed higher by this government stimulus, savers and pensioners suffered as their returns suffered from lower interest rates, according to Bloomberg.

Surging Asset Values 
The S&P 500 has surged roughly 94 percent since the last bull market started in March 2009, according to data compiled by Bloomberg and Morningstar Inc. In addition, the assets that equity exchange-traded, mutual and closed-end funds have under management spiked 85 percent during this period to reach $5.6 trillion.

While equities have enjoyed sharp appreciation since the current bull market began, commodities have surged in value since June 2009, with Bloomberg reporting that 22 of the 24 commodities contained in the S&P GSCI Commodity Spot Index have incurred inflation during the period.

Heating oil has spiked 77 percent in this time frame, and wheat has surged 58 percent, according to the news source. Corn rose in price by more than 100 percent even before 2012 began.

Moving "In Lockstep"
Ruchir Sharma, head of emerging market equities and global macro at Morgan Stanley Investment Management, said that stocks and commodities appreciated "in lockstep" from 2008 through 2011, during which the Federal Reserve started making asset purchases, the media outlet reports.

QE 
Further plans use to employ QE have been announced by various central banks in the recent past. Federal Reserve Chairman Ben Bernanke recently announced that after two rounds of monetary easing, the central bank will engage in further action to boost the money supply.

Bernanke indicated that the Fed will be purchasing $85 billion worth of assets every month and also holding interest rates near record lows in order to stimulate the economy and improve the labor market.

Bloomberg reports that while the central bank's purchase of assets totaled $2.3 trillion through June 2011, the latest round of QE will increase the value of that portfolio close to $4 trillion, compared to $924 billion on September 10, 2008.

Economic Stimulus
The central bank head recently elaborated on the reasoning behind this use of easing, saying in an October speech to the Economic Club of Indiana that "the way for the Fed to support a return to a strong economy is by maintaining monetary accommodation, which requires low interest rates for a time," according to the news source.

He added that "If, in contrast, the Fed were to raise rates now, before the economic recovery is fully entrenched, house prices might resume declines, the values of businesses large and small would drop, and, critically, unemployment would likely start to rise again."

Investor Wariness 
Investors are highly aware of the uncertainty that exists and the lackluster economic condition that central banks are combating, and these concerns have helped to drive people away from putting money into equities, according to Bloomberg.

The biggest factor that has been lowering investment in the stock market is a lack of confidence, James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which manages around $325 billion, told the news source during a telephone interview. The perception that the economic recovery is accelerating is supported by substantial evidence.

The flight from bonds has happened as record demand for bonds has pushed many of their yields to record lows, and negative levels in certain cases.

In the current environment of low interest rates and meager bond yields, what are you doing to utilize stocks in your investment portfolio? 

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