Central banks will continue to lift prices for years to come

Even after the Federal Reserve raises interest rates, central banks will continue to play an outsize role in bolstering equity and bond market returns, said Russ Koesterich, global chief investment strategist at BlackRock.

In a weekly commentary piece published Monday, Koesterich examined how central bank policies can influence the market. Most of the world’s central banks—including the European Central Bank, the Bank of Japan and the People’s Bank of China—are maintaining or expanding their easy-money policies.

 In the U.S., after Federal Reserve policy makers adopted a more cautious tone regarding the timing of the central banks’ first rate increase since 2006, U.S. Treasurys rallied.

The move lower in rates helped stocks rebound, Koesterich said, supported by increasing flows into equity funds.

The European Central Bank stepped in to provide crucial liquidity to the Greek banking system last week, as investors withdrew billions of euros.

 Through its monthly bond-buying program, the ECB has limited the possibility of widespread contagion that could result from Greece exiting the eurozone, though he expects a solution will be found to delay an exit, at least temporarily.

 Last week Chinese exchanges in Shanghai and Shenzhen were down about 13 %, after rising 130 % in the past year.That rapid run-up in prices has been facilitated by easing-monetary policy.

 “The upshot is that Chinese stocks are likely to continue their ascent only as long as the authorities are willing to provide significant monetary stimulus,” Koesterich said.

 The takeaway is simple, Koesterich said. Even after the Fed raises rates, loose monetary policy in the rest of the world will continue to artificially support markets—for better or worse.

marketwatch.com