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(The opinions expressed here are those of the author, a columnist for Reuters.)
By Jamie McGeever
Aug 26 (Reuters) - Wall Street is screeching to yet another all-time high, just as the Fed's Jackson Hole symposium is set to address wealth inequality and the central bank's role in fueling asset price inflation is once again coming under harsh scrutiny.
It is undeniable that trillions of dollars of asset purchases and years of official interest rates of zero and 10-year bond yields barely above 1% have boosted stock prices.
But the significance of Fed actions are overstated.
The tech-heavy composition of Wall Street, which benefits more from low interest rates and plain old stronger economic growth, are adding fuel to the U.S. stock surge. And the Fed's large balance sheet expansion is nowhere near the European Central Bank or Bank of Japan's.
Look no further than Wall Street: The S&P 500 has more than doubled from its COVID low of March last year, chalking up 51 record highs this year.
According to Ryan Detrick, chief market strategist at LPL Financial in Charlotte, North Carolina, only 1964 and 1995 had more than 50 new highs by the end of August. He reckons the S&P 500 could make 78 new highs this year, eclipsing the all-time record of 77 set in 1995.
On a 12-month forward earnings valuation basis, the S&P 500 earlier this year was its most expensive since 1999, just before the tech bubble burst. This price/earnings ratio has since drifted lower. But it is still above 20, which is unfamiliar territory for most of the last two decades.
Official interest rates and ultra-low benchmark bond yields make investing in profitable, cash-generating companies an attractive proposition. To some investors desperate for return, riskier stocks are a no-brainer.
Many argue there is a natural consequence of the Fed doubling the size of its balance sheet to $8.3 trillion since the pandemic outbreak.
As a share of GDP, that is now around 40%.
With stocks and other financial assets mostly in the hands of society's better off, critics say U.S. monetary policy is widening the gap between rich and poor and directly exacerbating wealth inequality.
The world's second and third largest central banks, meanwhile, have also ramped up their pandemic-fighting asset purchases. Their balance sheets, as a share of GDP, are far bigger than the Fed's. Yet stock markets and valuations in the euro zone and Japan are nowhere near as high.
"The commonly held narrative centers on the Fed, and if everyone believes that, then it is self-reinforcing," said Meb Faber, co-founder and chief investment officer at Cambria Investments in El Segundo, California.