How does the Fed's stimulus push stocks markets higher? I read that the Fed’s stimulus last March has contributed to a spectacular rally in stock markets. And indeed S&amp;P500 has increased a lot since March.
But how does the mechanism work? How does the fact that central banks are buying more US treasuries help the stock market to rally?
If there were economic laws that could be used to determine the level of the stock market, why would people post them here, and not use these rules to make money themselves? (This leads ti the Efficient Markets Hypothesis).
Stock prices are what investors are willing to pay. If investors believe that practically anything causes the price to go up, they will bid up prices. It does not matter whether these beliefs make sense.
In this case, the premise is that Fed stimulus will cause the economy to grow faster, and thus profits are likely to be higher.