Hi, Jazz... I have the impression that when Quantitative Easing created pressures, the economy let off steam by sending asset values (and stock values) up. Did you ever look at correlations between QE and the Dow?
I admitted that I had not. A little googling revealed that Bill McBride at Calculated Risk has done exactly that. Here is his graph, and here is the source post. The post also contains this Robert Shiller quote from July, 2010.
"For me a double-dip is another recession before we've healed from this recession ... The probability of that kind of double-dip is more than 50 percent. I actually expect it." (via Reuters: Chance of Double-Dip US Recession is High: Shiller)
Which is a bit of an aside. Be sure to have a look at the CR graph!
It seems to present a compelling case that QE 1 and 2 had significant effects on the U.S. stock market - very much to Art's point. And it sort of makes sense, in a way. Both QE's injected money into the economy . . . well -- not quite. More correctly, both QE's injected money into the FINANCIAL SECTOR. And wouldn't it make sense for some of that to end up in the Big Ponzi? I mean, it didn't end up in job creation or the pockets of the middle class - let alone the working poor.
But, as I will show below, if you believe that the QE brothers cause movement in the U.S. stock markets, then you might as well believe they also cause movements in markets around the world. I've labeled the points on the chart the same as CR did. Blue line is SP500, Green line is DAX (Germany), Brown line is Nikkei 225. The end of QE 1 squelched markets here and in Europe, and absolutely devastated it in Japan.
Update: Art correctly reminds me that the end of QE 2 in July should be indicated on the chart. Just put a mental mark at the right end of the graph, where all the indexes nose dive in unison.
Say what you will for or against QE. It's effects on the Stock market are imaginary.