Why the stock market is still hanging on …

The economy is sluggish, corporate guidance has turned a bit bearish, but the stock market is still at high levels.

What’s up?

Well, broadly speaking, it’s the QE3 effect – the Fed is flooding the marketing with money again, keeping interest rates low.

Remember the low interest rates may be good for borrowers, but are awful for investors looking for more-or-less fixed incomes with some modicum of security.

More specifically, starting in 2011, benchmark Treasury rates (e.g the 5-year T-Bond) have been below the broad market dividend yield – represented by the S&P 500 Dividend yield’.

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And, the spread has been widening recently – in favor of stock dividends

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Bottom line: money flows to the best returns … it’s basic finance.

Thanks to SMH for feeding the lead

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