Fed Is Driving Stocks Into ‘The Mother of All Melt Ups,’ the Market Is Looking Like 1999 Again

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Fed Is Driving Stocks Into ‘The Mother of All Melt Ups,’ the Market Is Looking Like 1999 Again

He referred to soaring equity valuations that preceded the 2000 dot-com bubble burst.

  • Veteran strategist Ed Yardeni, president of Yardeni research, said stocks are starting to “look like 1999 all over again,” during a CNBC interview this week.

  • He said actions by the Fed, including purchasing corporate bonds, have prompted a move out of bonds into equities, causing the latter to be in “the mother of all melt-ups.”

  • The Fed announced last week it spent $428 million in its first round of corporate buying, as part of its $250 billion programme.

  • Yardeni said the Fed’s decision to keep interest rates at zero will also force price-to-earnings ratios on stocks to turn higher.

Markets tanked in March, but strategist Ed Yardeni has shied away from calling it a market crash, and believes actions by the Fed are in fact causing stocks to explode into the “mother of all melt ups.”

Yardeni, who is president of Yardeni Research, told CNBC in an interview Monday: “The Fed has just poured in so much liquidity into the market that there’s a potential for something that might look like 1999 all over again.”

He referred to soaring equity valuations that preceded the 2000 dot-com bubble burst.

Yardeni said: “Remember that Prince song about partying like it is 1999. The market certainly has that potential.”

He shares the view that the Fed’s quantitative easing programme has prompted a flight out of bonds and made equities more attractive.

“By March 23 the Fed came in and did QE forever saying they would [buy] treasury and mortgage back securities that were open-ended,” he said.

“They started a programme which I call ‘no assets left behind’,” he said.

Yardeni believes the Fed’s purchase of corporate bonds, including some of the “lowest investment grade bonds that have turned into junk” has generated “a tremendous pressure to balance out of bonds and into stocks.”

The Fed announced in mid-June that it would begin purchases of up to $250 billion in corporate bonds. The program is known as the Secondary Market Corporate Credit Facility and is being operating by asset management behemoth BlackRock.

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