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A common concern among equity investors cited by Wall Street strategists is that the market is only being propelled higher by the Federal Reserve's quantitative easing program, which has kept financial markets flush with liquidity for the better part of the past several years, and is driving an expansion in valuation multiples.
Now that the consensus opinion is that the Fed will begin tapering back QE as soon as September, the conversation is getting a bit more urgent.
Since topping out at an all-time high of 1709.67 on August 2, the S&P 500 index has fallen 2.8%, closing down in seven of the last nine trading sessions. A good portion of those losses are accounted for by yesterday's 1.4% drop.
ConvergEx Group chief market strategist Nick Colas suggests that the markets are beginning to price in an eventual end to QE in a note to clients:
Colas points out that the fundamentals aren't necessarily that great to begin with, but he argues that "U.S. corporations have done tremendous work in getting profit margins back to peak levels even as the domestic economy grows only slowly and the rest of the world is pretty punk."
"Our message is more nuanced, and it comes down to 'Fundamentals matter again'," says Colas. "Forget the Fed."
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