Federal Reserve Is Propping Up Stocks

Federal Reserve has been propping up stock for the last few years. Technically, the Fed isn’t directly helping the stock market. It’s buying long-term government bonds and mortgage securities. But by lowering the cost of credit for corporations, it’s helped dump trillions into stocks as CEOs have leveraged up their balance sheet by issuing debt cheaply and using that money to repurchase their own shares. The practice of using debt to repurchase shares has become so widespread and aggressive — no wonder, since executive compensation is often tied to stock price and earnings per share metrics that benefit from reduced share counts — that it is believed to be limiting actual physical investment in plants and equipment.

But what will happen when Federal Reserve will stop propping the stocks?  Recent FED statements indicate that QE will be faced out soon and interest rates might be hiked in the early part of next year, so watch out the stock market can face a massive correction.