QE effect on equity...
 
Notifications
Clear all

QE effect on equity prices


Josh
Posts: 1
 Josh
Guest
Topic starter
(@Josh)
Joined: 4 weeks ago

How much do you attribute the rise in equity prices to QE?

2 Replies
Joseph Wang
Posts: 18
Admin
(@josephfedguy-com)
Member
Joined: 1 year ago

It's hard to say how much can be attributed to QE, but I think a good amount. 1) Many market participants believe that QE = stocks higher, so they buy stocks when there is QE. That psychological impact is IMO real. 2)QE pushes Treasury yields lower, which encourages some investors to move from Treasuries to corporate bonds. Corporations have been issuing a lot of corporate bonds since rates are lower, and then using the proceeds to buy back stock. That pushes stock prices higher. 

Reply
Dave
Posts: 3
 Dave
(@dave)
New Member
Joined: 4 weeks ago

When the Fed lowers interest rates via QE, that reduces the discount rate you use for the cost of capital in your DCF as valuation engine, and then those cash flows become more valuable. This pushes equity prices up. 

Reply