Why the market refuses to back down?

While there is a wildly profound dichotomy between the economic reality vs the stock market performance, the market is just so resilient and refuses to back down regardless of what is going on. Many reasons may be attributable to but the fundamentally it is due to the Fed's enormous dovish policy that has become a strong support to the market. Here is the list of the key takeaways from this week's Fed meeting:

1. The Fed will hold rates near zero for the foreseeable future
2. The Fed is extending its dollar repo and swap line to March 31
3. The Fed will continue to use its "full range" of tools to support the economy
4. The Fed will continue to perform its QE programs at the "current pace" of $125 billion per month ($1.5 trillion per year)
5. The economy, household spending, labor market, and business fixed investments are in various stages of recovery.

So… the Fed just told the market that it intends to provide, at a minimum, $2.1 trillion in additional liquidity to the financial system over the next 18 months. Let's put this into some perspective:  Prior to the COVID-19 crisis, the Fed's largest balance sheet expansion was $3 trillion over the course of eight years. Following the pandemic, the Fed has spent more than this in just three months.

In other words, the Fed has promised the market that it will backstop the financial system regardless of what happens and the market will be saved from crashes. And this is not a short term promise but virtually a "forever" deal!

I think that's the main and simple reason why the markets refuse to fall, no matter how horrible the economic data gets!

Of course, the ultimate outcome of this unlimited QE forever will be a disaster as eventually all the debt must be paid back one way or the other. But who cares about the long term effect when one can enjoy the short term euphoria? Enjoy it as long as it lasts but just be mindful of watching below carefully as well!!  Although the momentum for now is undoubtedly bullish and strong but it can change with a heartbeat and equally powerful and fast to go to the other direction suddenly. BE CAREFUL!!🤓