THE Standard & Poor’s 500 index is poised to hit its highest mark in nearly three years this week after more signs of life from the jobs market, but think twice before betting the house.
Many investors are coming to the view that the US employment situation has turned a corner, but the risks that sent stocks cascading between mid-February and mid-March are as real as ever.
In addition, the surprisingly robust recovery shown in recent economic data has some investors nervous that the Federal Reserve may end its easy money policies before schedule and increase interest rates in the second half of the year.
That could spell trouble for risk assets such as stocks and commodities that have benefited from the added liquidity provided by the Fed’s $600bn Treasury bond buying. The programme, known as quantitative easing, or QE2, is slated to end in June.
“The Fed is now going to much more seriously consider early withdrawal of QE2 because these numbers are getting stronger,” said Kenneth Polcari, managing director at Icap Corporates, a floor broker at the NYSE.
One Fed official poured cold water on that idea on Friday, saying he saw no reason to reverse course even as the economy adds jobs. The comments helped cement optimism over the jobs data.