The Trillion Dollar Question

As of July 1, the S&P was around 1010. A few days ago it was topping at 1185 (a fairly key S&P threshold).

The economic picture and concerns aren't much changed since my last post in early October. Unemployment is stubbornly high. Home sales bump along all-time low levels. Home prices are slowly resuming their decline (altho the foreclosure freeze may help stall this actually). Government inaction and high debt levels continue to concern. And GDP growth continues to be positive albeit at too slow of a pace to translate into actual job creation, increased spending, etc. Corporate earnings show strong profitability but inadequate revenue growth.

What's accounted for the rally? One simple thing -- the expectation that (as a result of these uneventful and arguably dire circumstances) the Fed will engage in a second round of Quantitative Easing to spur the economy once again (a-la March 2009 onward).

The announcement comes November 3rd.

Many expect the Fed to engage in $500 billion worth of easing over the next few months. Some want to see the phrase $1 trillion mentioned. Some believe it would take $6 trillion to have an actual impact though.

So what to make of the situation -- the July through October rally of approx 15% may be confirmed if the Fed announces what it expected. But then the question becomes, will the easing work, again? Hope alone cannot sustain the markets indefinitely.