By James Saft
(Reuters) – Equity markets, especially in the U.S., are being held aloft by two historical anomalies – quantitative easing and high corporate profits – either of which could start to go away in 2013.
Friday’s surprisingly good update on the state of the U.S. job market raised the chances that soon the Federal Reserve will be more actively – and publicly – mulling how and when it will slow or end its purchases of assets.
At the same time, U.S. corporate profits are at vertiginous levels and climbing, arguing at the very least for caution about their future path.
That combination, of very good and growing corporate earnings and monetary policy which pushes investors to take risks in equities, has helped lift the Dow Jones Industrial Average to an all-time record.
What happens, however, if progress in the jobs market continues? That might reverse the wage suppression that has been a feature of the anemic recovery of the past few years, crimping profits, while giving the Fed reason to begin pulling its support for the economy.