FT News Briefing Quantitative easing and rising stock prices
May 21, 2021
Financial commentator Rob Armstrong offers sizzling insights into the world of quantitative easing and its dramatic impact on stock prices. He breaks down the relationship between increased cash flow and rising market values, revealing how investor psychology plays a crucial role in shaping preferences for stocks over cash. Armstrong also touches on WeWork’s staggering financial losses and the broader implications of these shifts in the co-working landscape, while reflecting on the influence of the Federal Reserve in these turbulent times.
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How QE Works
- Quantitative easing (QE) involves the central bank buying assets, usually treasuries, from banks or individuals.
- This increases the cash held by these entities, influencing their investment decisions.
QE's Indirect Impact
- QE doesn't directly inject money into the stock market; it increases cash holdings.
- This shifts preferences towards stocks, leading to more transactions and higher demand, thus driving up prices.
The Psychology of QE
- The increased money supply from QE influences investment preferences by making cash less desirable.
- However, individual investors can still change their minds based on other factors, like market sentiment.