QE2: 3 signs to watch for progress

The "wealth effect"

    A fall in interest rates generally causes asset prices including stocks to rise. This is good for shareholders. But as Barry Ritholtz points out, the vast majority of Americans' wealth isn't exactly tied to the stock market. Quantitative easing might make the stock market rally but the equity market is overwhelmingly concentrated to the top 1% of Americans who own about 38% of stocks (by value) in the US, Ritholtz writes. He adds that most Americans have less than a 10% stake in the stock market and that the majority of their investments are still tied to their homes.

    So will the rise of stock prices ignite a flurry of consumer spending? Ritholtz thinks it's highly unlikely. In the coming months, it remains to be seen if stock prices will influence the consumer psyche, which is still preoccupied by debts, home values and job prospects.