Investors may have Ben Bernanke to thank for the rally that's taking place in the stock market. Bloomberg recently compiled numbers that show that both rounds of quantitative easing—the first round began in late 2008 and the second in November—had a positive impact on stocks.
From Bloomberg: "Most of the 47 percent stock rally during the past two years came on days when the Fed pumped money into markets through bond buying, according to data compiled by Bloomberg. Since the $1.7 trillion first round of quantitative easing began on Dec. 5, 2008, the Standard & Poor's 500 Index of stocks has climbed a combined 267 points on the 211 days when the Fed was adding stimulus, compared with 128 points on the 297 days when it wasn't."
One of the goals of the Fed's program is to push investors out of safer asset classes like treasuries and into riskier sectors like stocks. Keith Hembre, chief economist and investment strategist at FAF Advisors, told Bloomberg: "The primary benefit of quantitative easing ends up supporting the price of riskier assets, not necessarily that of [t]reasuries."
[See U.S. News's What's Going On With QE2?]
Many retail investors may be missing out on the stock rally because they've clung to the perceived safety of bonds. As Investor's Business Daily puts it, "What's up with fund flows? Why are so many shareholders pulling money out of U.S. stock funds despite record U.S. corporate profits and a fat run-up in the U.S. market?"
From IBD: "In the 12 months ended Dec. 6, shareholders yanked a net $71.3 billion out of U.S. stock funds, according to TrimTabs. At the same time, investors have shoved a net $269.9 billion into bond funds. Much of those bond inflows came from stock funds and money market funds. That shift out of U.S. stock funds occurred despite a rallying market, in which the S&P 500 zoomed 12.3 [percent]."
In the story, Morningstar analyst Kevin McDevitt says investors should keep an eye on one of the most unloved fund categories in recent years. He tells IBD: "There are positive opportunities, especially among large-cap growth funds. Whatever category individuals sell the most, that's where you see the best returns going forward."
[See U.S. News's Why You Should Buy Stocks That Pay Dividends.]
Commodities are also expected to get a boost from the Fed's buy-back program. For much of 2010, all types of commodities—from precious metals like gold and silver to oil—seemed to move in unison. That's beginning to change.
From the Wall Street Journal: "Now, as investors gain confidence in an economic rebound, the fortunes of individual commodities are diverging. The gap between the performance of Dow Jones-UBS indexes that track agricultural and energy commodities is close to its widest point of the year, with crops up 28 [percent] this year and fuels down 13 [percent], and industrial metals smack in the middle, up 8 [percent]. At midyear, by contrast, the year-to-date returns from all three sectors were within less than a percentage point of one another."
[See U.S. News's 6 Sectors to Watch in 2011.]