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Fed’s QE3 fails to ignite stock market

NEW YORK When the Federal Reserve breaks up its two-day meeting today, talk on Wall Street is likely to focus on the fact that QE3 has yet to provide a boost to the stock market.

After Tuesday’s stock swoon amid ongoing weakness in third-quarter profit reports, both the Dow Jones industrial average and Standard & Poor’s 500 are below levels they closed at following a big rally on Sept. 13 after Fed Chairman Ben Bernanke announced the central bank’s third round of QE. “Quantitative easing ” is an unconventional bond-buying policy designed to inject liquidity into the financial system and keep borrowing rates low in an effort to boost the economy and hiring.

Both the Dow and S&P 500 are more than 3% below where they were when QE3 was announced more than five weeks ago. In contrast, the broad stock market rallied 43% after QE1 was officially announced in late 2008 and 30% after Bernanke hinted at QE2 in the summer of 2010 in a speech at Jackson Hole, Wyo.

Gary Kaltbaum, president of Kaltbaum Capital Management, wonders if the market is finally acknowledging that the Fed’s strategy of flooding the system with money may not be enough to warrant a bull market in stocks, especially at a time when global growth is slowing.

“We have posed the question recently: What would happen if markets finally ignore the (Fed’s) obvious blatant move to goose the market even higher?” Kaltbaum said Tuesday in a report to clients. “We may just be at that point.”