The stars are aligning for our share market to deliver a strong fourth quarter that will largely be fueled by the flow of easy money.
Don't look now but that's great news for our embattled major miners like BHP Billiton Limited (ASX: BHP) and struggling Big Bank stocks that include household names like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC).
What a difference a week makes. Not only are investors now convinced that the US Federal Reserve will only contemplate lifting interest rates from a record low in 2016 instead of this year, but a prominent fund manager like BT Investment Management Ltd (ASX: BTT) believes the Fed could launch a new round of quantitative easing (QE).
Vimal Gor believes the world is short of US dollars and warned that global growth has slowed since the US Federal Reserve's QE program ended, reported the Australian Financial Review.
Keeping rates at near zero may not be enough to stop the US economy from slowing due to sagging global growth and the Fed may have to once again restart its program of buying US government bonds to stimulate the world's largest economy.
It's a controversial view as most experts believe the US will need to tighten money supply through higher interest rates in the not too distant future. A fourth round of QE runs contrary to this view.
Regardless of whether you subscribe to this view, it is clear that monetary settings are favourable for equities and I am expecting the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) to run higher before the year is out.
It is widely accepted that the rally in global equity markets since the global financial crisis was triggered by QE while record low interest rates gave a secondary tailwind.
We don't need QE for our market to run higher as another cut in interest rates in Australia will do quite nicely.
The Fed is in no rush to raise rates and that is likely to force the hand of the Reserve Bank of Australia (RBA) to cut the cash rate by 25 basis points on Melbourne Cup day because of the rising Australian dollar.
The Aussie has strengthened against the US dollar because US rates look like they will be on hold for some months and a higher local dollar will drag on already weak growth in Australia.
The weaker US dollar is also good news for commodity prices – and resource stocks by extension – but another sector that is set to benefit from the easy flow of money and rising markets is wealth management.
Stocks in this sector that are worth looking at include Magellan Financial Group Ltd (ASX; MFG), which posted a pleasing update, and AMP Limited (ASX: AMP).
