Strategies: The Greater the Turmoil, the Stronger the Dollar. Again.

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Strategies: For Investors, No Need to Duck. Just Diversify.

These two propositions may seem contradictory, but they’re not — at least in the view of David P. Kelly, chief global strategist at J.P. Morgan Funds.

“There are many problems in the economy and in the markets, certainly,” Mr. Kelly said in an interview. Short-term losses could easily be on the way, and they could be painful. “But the answer for a long-term investor isn’t to avoid risk,” he said. “It is to be extremely diversified — and to invest in equities. You’re likely to do much better that way than if you stay out of the markets.”

Still, he concedes, it’s very easy to make the case that the factors affecting the stock, bond, currency and commodity markets are spectacularly harrowing at the moment.

Just consider some of the more obvious problems.

The prospect of Western military intervention in Syria has rattled the markets, sending oil and gold prices higher, driving down the value of emerging-market currencies and stocks and unsettling the stock and bond markets in the United States.

In Washington, the fiscal clock is ticking toward two irksome deadlines. At the end of September, the federal government will run out of money unless Congress takes action, and even if it does, the government will hit its debt ceiling in mid-October, the Treasury says. At that point, unless there is a meeting of the minds in Congress and the White House, the United States won’t be able to pay all of its bills, and it could default on its debt.

And in mid-September, the Federal Reserve is widely expected to begin reducing its $85 billion monthly purchases of fixed-income securities, in a move known as “the taper.” Longer-term interest rates have already begun to rise in anticipation.

The prospect of Fed action has sporadically unsettled the markets, playing a role in the sell-off of emerging-market debt and raising fears of a vicious feedback loop, in which bond prices, currencies and the real economies in countries like India, Turkey and Indonesia plummet and threaten to spread contagion elsewhere around the world.

THIS is not a pretty picture, and Mr. Kelly doesn’t claim that it is. “We could have some very difficult moments,” he said. “The one thing you can expect is volatility.”

But in a trenchant summary of the prospects for investing under current conditions, Mr. Kelly said last week that the global economy had improved considerably since the collapse of Lehman Brothers five years ago. The economy is “more balanced” today, he said, with developed countries like the United States regaining strength and the world no longer needing to rely so heavily on growth in countries like China, India, Indonesia and Turkey.

Most important, relatively low interest rates have made stocks, as an asset class, more attractive than bonds. And he says “this should remain the case” even if interest rates rise over the next few years, as expected.

To be sure, people holding long-term Treasury bonds should expect to bear some losses if interest rates rise. (As I’ve noted recently, rates and bond prices move in opposite directions.) Ben S. Bernanke, the Fed chairman, has said that rates are likely to rise; that’s another way of saying that bond prices are likely to fall further, so investors should consider themselves forewarned.

But Mr. Kelly says that most investors shouldn’t be holding only long-term Treasuries — or only domestic stocks, or only cash, for that matter. “If you perceive that risk is rising, then you need to be extremely well-diversified, because no one can predict which asset will rise and which will fall in any given time,” he said in a conversation last week.

He advocates investing based primarily on valuation, buying assets that are cheaply priced and are likely to rise, rather than on momentum, buying assets whose prices are already rising. Momentum works for a while — until the momentum shifts, which could happen at any time, leaving investors with overvalued assets that they may have to sell in a market rout. “That’s not a very attractive strategy,” he said.

Current valuations suggest that developed-market equities are a better buy than developed-market bonds, Mr. Kelly said, and will remain so for several years even if interest rates rise. One valuation measure points this out: the difference between the yield on 10-year sovereign bonds, like United States Treasuries or German Bunds, and the earnings yield on equities. (The earnings yield is earnings per share divided by the current share price; it is the inverse of the price-to-earnings ratio, or P/E.)

Strategies: Rosy Earnings Forecasts, at Least at First

IS the glass half full or half empty? For several thousand analysts who make a living assessing the value of publicly traded stocks, the answer depends on which week it happens to be.

That’s what a study of the Standard & Poor’s 500 earnings cycle by Thomson Reuters/I/B/E/S shows.

The distant future sometimes looks better than the mundane day-to-day of the moment. For stock analysts who crunch numbers to come up with earnings estimates for individual companies, the far horizon is often just one year down the road. And the numbers show that when analysts estimate quarterly earnings a year in advance, they tend to be unrealistically optimistic about the prospects of companies they cover, according to Greg Harrison, the senior research analyst at Thomson Reuters who did the study.

Mr. Harrison’s day job involves compiling consensus earnings estimates for the overall stock market, figures he derives from the collective appraisals published by thousands of individual analysts. Does the market expect earnings for the S.& P. 500-stock index to rise or fall, and by how much? Have companies met expectations for the quarter, or will they disappoint the market? Some of the answers come from the data he gathers each week.

But while doing his work, he noticed a consistent pattern in the numbers, which he describes in a fascinating study of earnings since 2008, titled “Estimates Too High, Low? Check the Calendar.”

Except for several quarters in the Great Recession, he found, early earnings estimates are generally rosy, and become predictably and progressively gloomier as time goes on. As analysts revise estimates downward, it becomes easier for companies to beat the market consensus, creating what Wall Street calls a “positive earnings surprise” roughly two-thirds of the time.

Positive surprises, of course, are good for share prices. Negative surprises are not. And by being optimistic about the long-term future, and relatively pessimistic about immediate results, the quarterly cycle of stock market earnings estimates has the effect of bolstering the market.

Analysts, of course, are encouraged in this practice by corporate executives who routinely issue warnings — “guidance,” in Wall Street parlance — that their companies won’t really meet the analysts’ lofty targets. The analysts respond by lowering their targets.

Typically, Mr. Harrison finds, analysts are most accurate — neither too optimistic nor too pessimistic — about seven weeks before companies actually release earnings.

“That’s when analysts’ estimates and the eventual, real numbers meet,” Mr. Harrison said. But the analysts don’t leave well enough alone. Instead, they keep cutting their forecasts and end up being gloomier than reality warrants. “By the time earnings season actually ends,” he says, “it turns out that the analysts have been too pessimistic — and we end up with a lot of ‘earnings surprises.’ ”

We’re now near the end of the earnings season for the second quarter. Most big companies have already issued their final numbers for the period, and the current pattern fits the overall picture fairly well, Mr. Harrison says.

On July 2, 2012, for example, when he compiled the first market consensus for the second quarter of this year, analysts as a group were projecting great things for stocks one year ahead. They said earnings would grow at the blistering pace of 14.4 percent in the second quarter of 2013.

Reality hasn’t come close to matching that early optimism — but because analysts repeatedly ratcheted their projections downward, earnings reports have been surpassing the relatively pessimistic estimates of recent weeks.

On Friday, with 462 members of the S.& P. 500 reporting, Mr. Harrison found that the actual growth rate so far has been only 4.9 percent. Yet 67 percent of those companies beat the analysts’ estimates, producing positive surprises. How was that possible? Analysts collectively dropped their estimates for the quarter to only 2.9 percent on July 1, when earnings season began. The actual results were much better than that.

The rough pattern held for many major companies. Consider General Motors. On July 2, 2012, analysts covering G.M. estimated that it would have earnings per share of $1.25 in the second quarter of 2013. That July, the estimate of Ryan Brinkman, an analyst at J.P. Morgan, was $1.12. G.M. has “best-in-class leverage to global growth markets, ongoing operational turnaround, and improving product cadence,” he wrote.

G.M. has had problems, however. The company acknowledged that it was doing poorly in Europe. By mid-April, after a report that industrywide sales there had plummeted to a 30-year low, and that G.M.’s Opel brand was lagging, analysts’ estimates fell to 73 cents a share. Mr. Brinkman’s was 72 cents. For all analysts, they stood at 74 cents at the beginning of July and edged up to 75 cents the week of July 12.

But that was still way off the mark. G.M.’s actual earnings, released on July 25, were 84 cents a share. Although earnings declined compared with a year earlier, news coverage generally treated the announcement as a positive surprise.

Mark Bradshaw, an accounting professor at Boston College, says what we are seeing is probably overconfidence by analysts and deft maneuvering by corporate executives, who have leeway in adjusting accounting to improve reported profits and in choosing what information to reveal. “For companies, issuing ‘guidance’ has become an art form,” he said. “The analysts seem to try to do what they can, but they’re often at a loss.”

Aswath Damodaran, a finance professor at New York University, called the earnings season “a Kabuki dance” in which “analysts are trying to forecast; companies are trying on the other side, with accounting choices, to affect those earnings and to lower the forecasts; the companies watch the analysts; the analysts watch the earnings; and it’s all a big game. And it’s a game that the companies generally win.”

Frequent traders scrutinize these rituals, he said, seeking nuance. For them, he said, “it’s not enough now just to beat the earnings forecast. That’s too common. Now, you’ve got to beat the forecast enough — by a big-enough number that it really is a surprise — if you want to stir up the market.”

In his view, most of us would be better off ignoring short-term earnings reports. “None of this matters much to long-term investors,” he said. “It’s the long-term picture that’s important, and that is revealed eventually, even if it isn’t clear now.”

Is the glass half full or half empty? Don’t even try to figure that out during earnings season.

Strategies: Elastic Numbers Make It Hard to Get a Handle on the Economy

Yet the deluge of statistics did little to clarify an urgent question: How strong is the economy right now?

It’s a basic issue — one that affects the life of every American, the policy decisions of the Federal Reserve, the strategies of businesses and the performance of the markets. Unfortunately, the answer is by no means clear.

There are plenty of fresh numbers, though. On Friday morning, the Labor Department said the unemployment rate dropped in July to 7.4 percent, from 7.6 percent the previous month, and a total of 162,000 new nonfarm payroll jobs were created.

This is good news, but perhaps not as good as it seems. Even at 7.4 percent, unemployment remains uncomfortably high, and the government on Friday also revised downward job creation numbers for the previous two months, from 195,000 per month, to 176,000 for May and 188,000 for June. The Fed, acknowledging things are not as good as they could be four years after a major recession, reaffirmed its loose monetary policy. That policy, based on the assumption that the economy still needs emergency support, has helped hold interest rates to relatively low levels, and helped propel the stock market to new highs last week.

Gross domestic product numbers released on Wednesday also suggested that the economy was still ailing. In the second quarter of 2013, the Bureau of Economic Analysis said, the growth rate of G.D.P. was 1.7 percent, on a seasonally adjusted, annualized basis. That’s just a preliminary number, subject to extensive revision. For the first quarter, the bureau now says G.D.P. grew at a 1.1 percent rate — after a series of reductions from its initial estimate of 2.5 percent.

But how weak is the economy? The numbers don’t appear to fit a coherent pattern. Even with the downward revisions in the labor figures, the current level of job creation is greater than would typically be expected from a weak economy. The lackluster G.D.P. picture is hard to reconcile with the decline in the unemployment rate we’ve been seeing, said Joseph G. Carson, director of global economic research at AllianceBernstein. “During similar tepid growth environments in the past, unemployment has sometimes even increased rather than declined,” he said.

Something’s wrong with the numbers. “Growth in the private sector, which has been running at 3.3 percent, probably helps to explain the drop in the jobless rate,” he said. He believes the overall G.D.P. figures aren’t yet really capturing reality and that it’s likely that G.D.P. growth over the last two years has actually been stronger than reported. Mr. Carson is optimistic about the second half of this year. “I think the economy will be picking up, and the numbers will start to show that.”

The numbers are remarkably malleable, as the Bureau of Economic Analysis demonstrated last week.

In addition to the normal range of monthly and weekly economic reports, the bureau issued an ambitious revision of its statistics, adjusting a vast range of figures going back more than 80 years. Its revision showed that the recent recession was a little less severe than earlier reported, and the recovery has been a bit stronger. The economy shrank at an average annual pace of 2.9 percent, not 3.2 percent, in the recession that started in December 2007 and ended in June 2009. And from the recession’s end through 2012, the economy grew at an average annual rate of 2.2 percent, not 2.1 percent as previously published.

Those numbers would still classify the recession as the worst since World War II, and the recovery as the weakest. Further revisions will be made as needed, and, given the anomalies in the current data, it seemed likely that some future changes will be significant. Ben S. Bernanke, the Fed chairman, alluded to this possibility in Congressional testimony last month.

“We all should keep in mind that these are very rough estimates and they get revised,” Mr. Bernanke said. “For example, you get somewhat different numbers when you look at gross domestic income instead of gross domestic product.”

IN theory, G.D.I. and G.D.P. should be equal. One measures gross income, the other gross production, and as a matter of basic accounting they ought to match. But they don’t, not in real time, because they are collected from different sources using different deadlines and definitions. G.D.P., for example, depends heavily on sales receipts, while G.D.I. relies on data from paychecks, which are often issued well after sales are made, said J. Steven Landefeld, director of the bureau. “G.D.I. and G.D.P. are both the bureau’s children,” he said. “We’re proud of both, and we know they’re different.”

Early G.D.I. numbers have provided a better indicator of cyclical changes in the economy — of the onset and the end of the last recession, in particular — than have early readings of G.D.P., according to research by Jeremy J. Nalewaik, a Fed economist.

What are the G.D.I. numbers telling us now? It depends on how you look at them. The Economic Cycle Research Institute, an independent forecaster, said that the economy fell into another recession “sometime in the middle of 2012 and it is still in a recession now,” according to Lakshman Achuthan, the institute’s chief operations officer. He relied in part on G.D.I. data. But the vast majority of mainstream economists reject this interpretation, and Mr. Landefeld said G.D.I. numbers might sometimes exaggerate economic trends.

The G.D.P. and G.D.I. numbers available right now indicate that the economy is growing, but Mr. Achuthan said that the historical revisions made last week “are a reminder that these numbers are all a moving target, and that they will change.”

Mr. Carson of AllianceBernstein is far more sanguine, saying the economy appears to be growing modestly. But he agrees that the data isn’t allowing clear visibility. “We’ve gotten so many new numbers,” he said. “They help a bit. Now the past has become a little less foggy, but as for the present, there’s still plenty of fog to go around.”

Strategies: Getting Creative With the G.D.P.

That critique wouldn’t be surprising if it came from an underappreciated artist, scientist or technologist. But it’s being made in what may seem an unexpected quarter: the offices of the federal government. It’s the verdict of the experts who measure the American economy.

We live in an increasingly knowledge-based economy, but until now, official statistics haven’t adequately captured that reality, particularly in the single number describing the economy’s size: the gross domestic product.

That’s the view of Steve Landefeld, director of the Bureau of Economic Analysis, the Commerce Department unit that measures G.D.P. “We’ve been trying to understand the sources of growth in the G.D.P.,” he said. “One of the longstanding gaps in the numbers has been the contributions of intangibles — creations in the arts and entertainment, research and development, things like that — and what they contribute to G.D.P.”

This week, the bureau is doing something about it. It plans to give a greater economic weighting to the creation of many types of intellectual property — from books to movies to music to biotech drugs. The economy won’t change overnight, but the numbers will. Going all the way back to 1929, the G.D.P. will look bigger.

This is to take place on Wednesday, when the bureau releases the results of an immense revaluation of the size and composition of the American economy from the Great Depression to the present. It undertakes this exercise every five years or so, altering its methods as the economy and data quality change. Among the bureau’s revisions is a change in its treatment of research and development and the creation of what it calls “entertainment, literary and other artistic originals.”

That category seemed startling when I saw it in a bureau study on intangibles and the economy.

Artistic originals include books, movies, TV shows, music, photographs and greeting cards — yes, greeting cards. That may seem strange — it did to me, at first — but bear with me.

Copies of an original card that is designed today can still be sold a year or more from now. In that sense, a greeting card is like a building or a machine tool or computer software — it’s a capital investment that can generate revenue for years to come. Items that fit the bureau’s economic definitions will be given a bigger weight in G.D.P. calculations. They will be considered assets — capital investments rather than expenses — and the cost of producing them will be added to G.D.P. In addition, the revenue generated by the cards will be included in G.D.P. later on, when the money flows in.

Money generally needs to change hands for creative work to be considered an investment. Unpaid authors still won’t count as contributors to the G.D.P. Yet in 2007, the accounting change would have added roughly $9 billion to G.D.P. from book-writing alone, a preliminary bureau study found.

That may bolster the self-esteem of some writers, but it will do nothing for those of us who write for newspapers, magazines, blogs and the like. A newspaper column has no enduring value, from the bureau’s pecuniary perspective.

That made for an awkward moment in a conversation with Robert Kornfeld, a bureau economist. He assured me that he wasn’t making a literary judgment. It’s simply that daily journalism is perishable, he said. It’s not worth much commercially a year after it’s published. In the new digital world, a column might turn into an e-book with long shelf life, and the bureau might be able to embrace it. “Who knows?” he said. “We re-evaluate these things all the time.”

Work in other creative fields is being excluded from the investment category, too, and for similar reasons. “Seinfeld” has long-term commercial value, he said. “Monday Night Football” does not, at least not in the new calculations. TV sitcoms and dramas generally count as investments. Soap operas, reality shows and sports do not.

The big picture is this: Recalculating the treatment of all “artistic originals” that fit the bureau’s definitions would have increased the economy in 2007 by about $70 billion, or 0.5 percent. And R.& D., particularly in the field of biotechnology, would have added more than $200 billion. Combined, these two changes would have swelled G.D.P. by almost 3 percent, Mr. Kornfeld said. How it will affect G.D.P. this year and in the restatement of past numbers was being calculated as we spoke. Brent R. Moulton, the bureau’s associate director for national accounts, said the statistics would be out this week. He noted that other nations had been making such shifts as well.

The changes could have profound implications. R.& D. and the creation of entertainment originals have generally been treated as a cost of doing business, reducing G.D.P. Now they will be recognized for their potential to add economic value for years to come. Business software has been treated this way since the 1990s. “It makes sense to expand our definitions,” Mr. Landefeld said. “That’s something the bureau has done for decades.”

But the bureau’s changes will widen the gap between corporate and national economic accounting, said Baruch Lev, a professor of accounting and finance at New York University. Despite the change in G.D.P. accounting, he said, R.& D. is still generally treated as an expense, not as an investment, in calculating profits and tax liability.

“National accounting — G.D.P. accounting — is giving us a more accurate picture of the world,” he said, adding that various intangibles might constitute as much as 50 percent of the value of publicly traded companies. These assets don’t show up on corporate balance sheets, he said, keeping investors “in the dark about the true value of many of the companies traded in the stock market.”

THE bureau is still in the dark about many things, too. It doesn’t know the commercial value of a new movie or of esoteric R.& D. in biotechnology, Mr. Landefeld said. “Some of these things succeed, some fail, some have no enduring value; we don’t make a judgment,” he said.

When George Lucas made the first “Star Wars” movie in the 1970s, for example, no one knew that it would generate hundreds of millions of dollars in revenue in a stream that continues to this day. Should it have been considered an investment? It could easily have bombed.

“From the standpoint of accounting, we wouldn’t care,” Mr. Landefeld said. The bureau is tallying the production costs of movies, blockbusters and clunkers alike, adding them as assets to the G.D.P. in the years when they were made. The revenue they bring in later will be counted, too.

“Some movies are forgettable; some aren’t,” he said. “We’ll average that out and get the big picture and we hope it will give us a better understanding of the economy.”

Strategies: If You’re a Bond Investor, Beware of the Seesaw

THE Securities and Exchange Commission issues frequent bulletins about what it calls “investment frauds and scams” — a frightening taxonomy of plots and stratagems aimed at separating investors from their money.

The agency’s alerts range from warnings of Madoff-style Ponzi schemes to “pump and dump” operations intended to temporarily inflate a stock price. They also include cautionary notes about polite offers of assistance from predators posing as government regulators.

Lately, though, the S.E.C. has been giving a warning of a different sort. Bearing the general title “Interest Rate Risk,” this latest bulletin is a cry for understanding. It’s about bonds, and for most people, the subject is confounding.

The problem isn’t a new scam but a lack of knowledge about how bonds work, which can be dangerous in a time of rising interest rates. In its bulletin, the agency points out that investors need to understand that when rates rise, bond prices generally fall. This inverse relationship is a fact of life in the bond market. Like gravity in the physical world, it’s constant, powerful and important.

But outside trading floors, business schools, banks and brokerage firms, bond dynamics are fairly obscure, surveys find. That’s troubling in a time like this, said Lori Schock, director of the agency’s Office of Investor Education and Advocacy. “We’re not predicting what’s going to happen to interest rates or when,” she said, “but we do know that rates can’t go much lower. And we know that they can go a lot higher.”

If interest rates do go higher, most people don’t understand how that will affect bonds. A 2012 financial literacy survey by the Finra Investor Education Foundation asked this question: “If interest rates rise, what will typically happen to bond prices?” Prices will fall, but only 28 percent of adult Americans in the survey answered correctly. Finra ran the same survey in 2009 and got the same results.

The Finra survey found that financial literacy levels were generally very low. On its Web site, it offers a five-question quiz, with questions drawn from the survey — none requiring computations, just an understanding of basic concepts. Only 14 percent get them all right, it says. (The average number of correct answers is between 2 and 3.)

As far as bonds go, Ms. Schock said, one way to visualize the relationship of interest rates and prices is to think of what she calls “a teeter-totter.” She’s from Indiana. In Queens, where I come from, we call it a seesaw. Whatever you call it in your playground, imagine interest rates sitting on one side of a plank and bond prices clinging to the other. When one side rises, the other falls.

That’s just the way seesaws work, and it may be enough explanation. But suppose you want to go a little deeper: Why do interest rates and bond prices move like this?

Here’s one way to understand it: When you buy a fixed-rate bond, you are making a loan. In return, you get your money back, plus interest. When market interest rates rise, the bond drops in value. That’s because, under current conditions, anyone making the same loan will expect more interest than you’ve gotten. If you want to trade the old bond for a new one, the old one will have less value. And when something sold in the marketplace has less value, its price usually falls.

There are exceptions to every rule, of course. If the bond’s interest rate isn’t fixed, and instead readjusts as market rates change, the seesaw analogy doesn’t hold. And the prices of different kinds of bonds shift differently. But the seesaw captures the basic idea.

It’s important right now because interest rates have risen since the spring, and, therefore, prices have fallen. If you don’t understand the relationship between prices and rates (often called yields) you could hurt yourself “by reaching for yield, buying bonds that you think are going to pay you more interest, only to see rates go up further, so the value of your bonds will fall,” Ms. Schock said.

Many people are in danger of getting hurt this way. “We’re concerned that many people might mistakenly think that there’s safety in investing in bonds,” she said, “when there’s actually a fairly good chance of running into trouble with interest rate risk now.”

EVEN Treasury bonds are affected by interest rate risk, although the federal government backs these bonds and will pay all the principal and interest if you hold them to maturity. Such high-quality bonds are safe in many ways, especially in comparison with other assets.

Bond prices are generally less volatile than stock prices, and a major bond market decline is likely to be much less severe than a major fall in the stock market. Bonds can provide steady income and — whether held individually or in a mutual fund — can play an important role in a diversified portfolio, buffering against stock fluctuations.

But when market rates rise, you’ll run into a pricing problem if you need to sell a bond — or if you hold Treasuries in a mutual fund, where they are priced daily. All things equal, your mutual fund will fall in value as yields rise.

Interest rates on Treasuries — and a range of other bonds — have already risen sharply, and a broad consensus of market analysts says they are likely to rise further in the years ahead. Historically, rates are still relatively low, largely in response to the policies of the Federal Reserve. The Fed has been buying $85 billion of bonds a month, but is considering an end to those purchases.

Bond yields gyrated last week in response to congressional testimony by Ben S. Bernanke, the Fed chairman, who said Fed action was “by no means on a preset course.” If the economy strengthens, he said, the Fed will ease its bond-buying. That could result in higher interest rates.

If you hold your bonds until maturity — or keep them as a buffer — you may tolerate such swings. But it’s better if you understand what’s going on. Remember the seesaw: When yields rise, prices fall.

Strategies: If You’re a Bond Investor, Beware of the Seesaw

THE Securities and Exchange Commission issues frequent bulletins about what it calls “investment frauds and scams” — a frightening taxonomy of plots and stratagems aimed at separating investors from their money.

The agency’s alerts range from warnings of Madoff-style Ponzi schemes to “pump and dump” operations intended to temporarily inflate a stock price. They also include cautionary notes about polite offers of assistance from predators posing as government regulators.

Lately, though, the S.E.C. has been giving a warning of a different sort. Bearing the general title “Interest Rate Risk,” this latest bulletin is a cry for understanding. It’s about bonds, and for most people, the subject is confounding.

The problem isn’t a new scam but a lack of knowledge about how bonds work, which can be dangerous in a time of rising interest rates. In its bulletin, the agency points out that investors need to understand that when rates rise, bond prices generally fall. This inverse relationship is a fact of life in the bond market. Like gravity in the physical world, it’s constant, powerful and important.

But outside trading floors, business schools, banks and brokerage firms, bond dynamics are fairly obscure, surveys find. That’s troubling in a time like this, said Lori Schock, director of the agency’s Office of Investor Education and Advocacy. “We’re not predicting what’s going to happen to interest rates or when,” she said, “but we do know that rates can’t go much lower. And we know that they can go a lot higher.”

If interest rates do go higher, most people don’t understand how that will affect bonds. A 2012 financial literacy survey by the Finra Investor Education Foundation asked this question: “If interest rates rise, what will typically happen to bond prices?” Prices will fall, but only 28 percent of adult Americans in the survey answered correctly. Finra ran the same survey in 2009 and got the same results.

The Finra survey found that financial literacy levels were generally very low. On its Web site, it offers a five-question quiz, with questions drawn from the survey — none requiring computations, just an understanding of basic concepts. Only 14 percent get them all right, it says. (The average number of correct answers is between 2 and 3.)

As far as bonds go, Ms. Schock said, one way to visualize the relationship of interest rates and prices is to think of what she calls “a teeter-totter.” She’s from Indiana. In Queens, where I come from, we call it a seesaw. Whatever you call it in your playground, imagine interest rates sitting on one side of a plank and bond prices clinging to the other. When one side rises, the other falls.

That’s just the way seesaws work, and it may be enough explanation. But suppose you want to go a little deeper: Why do interest rates and bond prices move like this?

Here’s one way to understand it: When you buy a fixed-rate bond, you are making a loan. In return, you get your money back, plus interest. When market interest rates rise, the bond drops in value. That’s because, under current conditions, anyone making the same loan will expect more interest than you’ve gotten. If you want to trade the old bond for a new one, the old one will have less value. And when something sold in the marketplace has less value, its price usually falls.

There are exceptions to every rule, of course. If the bond’s interest rate isn’t fixed, and instead readjusts as market rates change, the seesaw analogy doesn’t hold. And the prices of different kinds of bonds shift differently. But the seesaw captures the basic idea.

It’s important right now because interest rates have risen since the spring, and, therefore, prices have fallen. If you don’t understand the relationship between prices and rates (often called yields) you could hurt yourself “by reaching for yield, buying bonds that you think are going to pay you more interest, only to see rates go up further, so the value of your bonds will fall,” Ms. Schock said.

Many people are in danger of getting hurt this way. “We’re concerned that many people might mistakenly think that there’s safety in investing in bonds,” she said, “when there’s actually a fairly good chance of running into trouble with interest rate risk now.”

EVEN Treasury bonds are affected by interest rate risk, although the federal government backs these bonds and will pay all the principal and interest if you hold them to maturity. Such high-quality bonds are safe in many ways, especially in comparison with other assets.

Bond prices are generally less volatile than stock prices, and a major bond market decline is likely to be much less severe than a major fall in the stock market. Bonds can provide steady income and — whether held individually or in a mutual fund — can play an important role in a diversified portfolio, buffering against stock fluctuations.

But when market rates rise, you’ll run into a pricing problem if you need to sell a bond — or if you hold Treasuries in a mutual fund, where they are priced daily. All things equal, your mutual fund will fall in value as yields rise.

Interest rates on Treasuries — and a range of other bonds — have already risen sharply, and a broad consensus of market analysts says they are likely to rise further in the years ahead. Historically, rates are still relatively low, largely in response to the policies of the Federal Reserve. The Fed has been buying $85 billion of bonds a month, but is considering an end to those purchases.

Bond yields gyrated last week in response to congressional testimony by Ben S. Bernanke, the Fed chairman, who said Fed action was “by no means on a preset course.” If the economy strengthens, he said, the Fed will ease its bond-buying. That could result in higher interest rates.

If you hold your bonds until maturity — or keep them as a buffer — you may tolerate such swings. But it’s better if you understand what’s going on. Remember the seesaw: When yields rise, prices fall.

Strategies: Why Many Retirees Could Outlive a $1 Million Nest Egg

In 1953, when “How to Marry a Millionaire” was in movie theaters, $1 million bought the equivalent of $8.7 million today. Now $1 million won’t even buy an average Manhattan apartment or come remotely close to paying the average salary of an N.B.A. basketball player.

Still, $1 million is more money than 9 in 10 American families possess. It may no longer be a symbol of boundless wealth, but as a retirement nest egg, $1 million is relatively big. It may seem like a lot to live on.

But in many ways, it’s not.

Inflation isn’t the only thing that’s whittled down the $1 million. The topsy-turvy world of today’s financial markets — particularly, the still-ultralow interest rates in the bond market — is upending what many people thought they understood about how to pay for life after work.

“We’re facing a crisis right now, and it’s going to get worse,” said Alicia Munnell, director of the Center for Retirement Research at Boston College. “Most people haven’t saved nearly enough, not even people who have put away $1 million.”

For people close to retirement, the problem is acute. The conventional financial advice is that the older you get, the more you should put into bonds, which are widely considered safer than stocks. But consider this bleak picture: A typical 65-year-old couple with $1 million in tax-free municipal bonds want to retire. They plan to withdraw 4 percent of their savings a year — a common, rule-of-thumb drawdown. But under current conditions, if they spend that $40,000 a year, adjusted for inflation, there is a 72 percent probability that they will run through their bond portfolio before they die.

Suddenly, that risk-free bond portfolio is looking risky. “The probabilities are remarkably grim for retirees who insist on holding only bonds in the belief that they are safe,” says Seth J. Masters, the chief investment officer of Bernstein Global Wealth Management, a Manhattan-based firm, which ran these projections for Sunday Business. “Because we live in this world we tend to think of it as ‘normal,’ but from the standpoint of financial market history, it’s not normal at all,” Mr. Masters said. “And that’s very clear when you look at fixed-income returns.”

Several rounds of intervention by the Federal Reserve and other central banks, aimed at stimulating a moribund economy, have helped to suppress rates, and so has low inflation. Low rates have led to cheaper mortgages and credit cards, helping to balance family budgets.

But for savers, low rates have been a trial. The fundamental problem is that benchmark Treasury yields have been well below 4 percent since early in the financial crisis. That creates brutal math: if your portfolio’s income is below 4 percent, you can’t withdraw 4 percent annually, and add inflation adjustments, without depleting that portfolio over time.

And with rising life expectancies, many people will have a lot of time: the average 65-year-old woman today can be expected to live to 86, a man to 84. One out of 10 people who are 65 today will live past 95, according to projections from the Social Security Administration.

“If you’re invested only in bonds and you’re withdrawing 4 percent, plus inflation, your portfolio will decline,” said Maria A. Bruno, senior investment analyst at Vanguard. “That’s why we recommend that most people hold some equities. And why it’s important to be flexible.” In some years, investors may need to withdraw less than 4 percent, she said, and in some years they can take more.

Clearly, such flexibility depends on individual circumstances. Billionaires can afford to be very flexible: just 2 percent of a $1 billion portfolio is still $20 million. With economizing, even a big spender should be able to scrape by on that. But $20,000 — the cash flow from a $1 million portfolio at 2 percent — won’t take you very far in the United States today.

And if you’re not close to being a millionaire — if you’re starting, say, with $10,000 in financial assets — you’ve got very little flexibility indeed. Yet $10,890 is the median financial net worth of an American household today, according to calculations by Edward N. Wolff, an economics professor at New York University. (He bases this estimate on 2010 Federal Reserve data, which he has updated for Sunday Business according to changes in relevant market indexes.)

A millionaire household lives in elite territory, even if it no longer seems truly rich. Including a home in the calculations, such a family ranks in the top 10.1 percent of all households in the United States, according to Professor Wolff’s estimates. Excluding the value of a home, a net worth of $1 million puts a household in the top 8.1 percent. Yet even such families may have difficulty maintaining their standard of living in retirement.

“The bottom line is that people at nearly all levels of the income distribution have undersaved,” Professor Wolff said. “Social Security is going to be a major, and maybe primary, source of income for people, even for some of those close to the top.”

Professor Munnell said that in addition to relying on Social Security, which she called “absolutely crucial, even for people with $1 million,” other options include saving more, spending less, working longer and tapping home equity for living expenses. “There aren’t that many levers we can use,” she said. “We have to consider them all.”

THE bond market has always been a forbidding place for outsiders, but making some sense of it is important for people who rely on bond income.

Low bond yields have been a nightmare for many investors, but that’s not the only issue. Today’s market rates aren’t stable. Steve Huber, portfolio manager at T. Rowe Price, said, “Current yields are an anomaly when you consider where rates have been over the last decade or more.”

Rates are expected to rise. While that will eventually mean more income for bond buyers, it will create a host of problems. Already, the market has been rattled by speculation that after years of big bond-buying, the Fed may soon begin to taper its appetite. In May, a half-point climb in the yield of 10-year Treasury notes produced the biggest monthly bond market losses in nine years. (Yields and prices move in opposite directions.) Yet yields remain extraordinarily low on a historical basis. The yield on the benchmark 10-year Treasury note is just under 2.2 percent, compared with more than 6.5 percent, on average, since 1962, according to quarterly Bloomberg data.

Strategies: At Apple and JPMorgan, a Good Week for the C.E.O.

That ancient tension between legal tax avoidance and illegal tax evasion, and between a corporation’s self-interest and the fundamental requirements of a government and its citizens, remains at the heart of the American system. It was on full display at the Senate hearing last week on Apple’s tax practices in the 21st century.

“We don’t use gimmicks,” Apple’s C.E.O., Timothy D. Cook, declared in prepared testimony.

That statement seemed absurd to one expert witness at the hearing, J. Richard Harvey Jr., a professor at Villanova Law School. “Apple does not use tax gimmicks?” Professor Harvey testified. “I about fell off my chair when I read that.” Mr. Harvey said Apple had set up corporations in Ireland that were little more than empty shells. By exploiting gaps in international law, Apple’s tax strategizing saved the company $7.7 billion in 2011 alone, he said.

The hearing furnished an illuminating blueprint of Apple’s tax strategies, and was a riveting spectacle. But for anyone hoping that it would result in an swell of support for closing tax loopholes and repatriating hundreds of billions of dollars in cash held “overseas” by American corporations — in Apple’s case, actually deposited in Manhattan bank accounts — the event was something of a letdown.

Mr. Cook, after all, received rave reviews from senators in the room, starting with Rand Paul, the Kentucky Republican. Even before Mr. Cook took the stand, Mr. Paul posted pre-emptively on Twitter, “If there is anyone to blame here it is not Apple, it is Congress and the tax code it created.” And news reports afterward generally said Mr. Cook’s genial manner — and the aura surrounding Apple’s immensely popular products — effectively disarmed the Senate panel.

For Nell Minow, who has spent the last 27 years researching and advocating policies that she says are aimed at improving corporate America’s behavior, it was a difficult week. “With corporate governance battles, you get used to tilting at windmills,” she said.

Beyond the Apple hearing, she pointed to another prominent event that could be viewed as a corporate governance setback. That was a vote on whether the jobs of chairman and C.E.O. should be held by the same person at a major company, JPMorgan Chase. Splitting the two jobs — under the theory that an independent chairman offers meaningful oversight over a C.E.O. — has been a trend. In 2002, only 25 percent of Standard & Poor’s 500 companies separated the two roles. In 2012, some 43 percent did, according to a survey by Spencer Stuart, the executive search firm.

But at JPMorgan, shareholders voted last week by a roughly two-to-one margin against splitting the jobs, both held by Jamie Dimon. Like Mr. Cook, Mr. Dimon is often said to be an extremely effective leader, and his personal popularity may have been an influence. Heavy lobbying and aggressive tactics by the company also helped in the vote, which in any case was only advisory. (Even if it had gone against Mr. Dimon, he wouldn’t have been required to heed it.)

It’s possible that another factor introduced voting bias. Seven of the 10 institutional investors who are JPMorgan’s largest shareholders are themselves run by C.E.O.’s who are also chairmen. That was reported by Bloomberg News, which found that the top 10 shareholders held 29.5 percent of JPMorgan’s stock.

A cozy sense of entitlement is a tendency that separating the jobs is intended to combat, Erik Gordon, a professor of law and business and the University of Michigan, said in an e-mail.

“If you ask C.E.O.’s who also are chairs of their board whether it is a good idea to let another C.E.O./chair do the same thing, the answer is obvious: it is a very good idea,” he said. “That’s what they’ve told their own boards. It is hard to change corporate governance when people who like things just as they are control the votes. It’s like asking members of Congress to vote in favor of giving up their privileges.”

DOES splitting the two jobs improve a corporation? Not necessarily. Mr. Dimon suggested before the polling that he might leave JPMorgan if the vote for job-splitting prevailed, a move that some shareholders said would hurt the company.

But instituting checks and balances is good policy in government, corporate and otherwise, said Robert A. G. Monks, a shareholder advocate. Having an independent chairman is “a prerequisite of good governance but it’s not a guarantee,” he said.

Apple has had independent chairmen for years. Still, Mr. Monks contended, while it has been a colossally creative and successful company, it’s also been “an irresponsible corporate citizen,” for, among other failings, “gaming the international system” to avoid paying taxes. And such tax revenue, he said, is “badly needed right here in the United States.”

At the hearing, Mr. Cook said, “We pay every penny we owe.” Mr. Monks said that while this may be true, Apple’s tax avoidance hurts the country.

Ms. Minow put the idea a bit differently. Corporate behavior can be lethal for the body politic, she said. As a modern corporation, she said, Apple is “designed to offload as many costs as possible, and to keep as many of its revenues as possible” and is thus an “externalizing machine in the same way that sharks are killing machines.”

In the JPMorgan vote, Mr. Monks said, he was heartened by large numbers of negative votes cast against members of the board’s risk committee, an action that may portend a shake-up. JPMorgan lost $6 billion in a derivatives trading debacle in London last year — a reminder, he said, of the financial system’s vulnerability to feckless risk-taking by giant banks.

“It will take relentless effort by shareholders and by the government to make corporations behave like good citizens,” he said. Like Ms. Minow, Mr. Monks is a co-founder of the Corporate Library, a governance research firm, and of its successor, GMI Ratings. He is also the author of a new book, “Citizens DisUnited: Passive Investors, Drone C.E.O.’s and the Corporate Capture of the American Dream.”

Along with the setbacks, Ms. Minow said, corporate democracy has won victories. Earlier this month, she said, Hess, the oil company, agreed under pressure to appoint three dissidents to its board and to separate the jobs of chairman and C.E.O. “Every so often,” she said, “if you tilt at windmills long enough, you’ll find that one of them falls over.”

Strategies: Japan Starts to Recharge After Two Lost Economic Decades

Envious foreigners called its export-driven economy a “miracle.” Its real estate and stock markets seemed to defy gravity, and its financiers were so flush with cash that they bought skyscrapers, golf courses and corporate empires far from Japan’s shores.

Then the bubble burst. In 1990, Japan began more than 20 years of stagnation and deflation. Invest in Japan? For most foreigners, it was wiser to avoid it. At the end of 1989, the Topix, a k a the Tokyo Stock Price index, reached 2,881. Now it’s less than half that.

It’s possible, at least, that those lost decades are finally over. Japanese markets have become turbocharged again, and are beginning to move markets worldwide. This year alone, the Topix has risen more than 22 percent in dollar terms, far exceeding the gain of the Dow Jones industrial average and nearly every other major stock market. The yen has weakened sharply, trading at more than 100 to the dollar for the first time in four years. That exchange rate should make many Japanese companies more profitable and more competitive. It may also inject inflation into the Japanese economy, encouraging consumers to spend and companies to invest.

“What is happening in Japan is revolutionary,” said Mohamed El-Erian, the chief executive of Pimco, one of the world’s largest bond managers. “Nothing they’ve done since the Second World War comes close in terms of economic experimentation,” he said.

It’s far too soon to judge whether “Abenomics” — the new policies of Prime Minister Shinzo Abe and Haruhiko Kuroda, the Bank of Japan governor — will be successful. But they have already begun to change expectations within Japan and around the world.

Most crucially, there are signs that the policies may be breaking Japan’s debilitating spiral of deflation. In April, Mr. Kuroda declared that Japan would achieve an inflation target of 2 percent within two years — an ambitious goal that he said he would achieve by doubling the country’s monetary base.

The central bank, which has already been holding short-term interest rates near zero, is making direct purchases of long-term bonds and other securities. That program of quantitative easing is enormous, Mr. El-Erian said: “It is much bigger than the Federal Reserve’s in the United States, when you consider the size of the two economies.”

Is the new monetary policy working? It hasn’t been in place long, and no up-to-date inflation data is yet in hand. The latest government figures show that in March, Japan’s consumer price index fell 0.5 percent, annualized, a deflationary reading. But Japan’s bond prices imply that expectations for inflation two years from now have already jumped to well above 1.6 percent.

“It’s not quantifiable yet, but the psyche of the Japanese consumer may actually be changing,” said Taizo Ishida, lead manager of the Matthews Japan fund, a stock mutual fund for American investors. “Anecdotally, you can feel it,” he said. “People are beginning to put money into equity mutual funds in Japan, and consumers are buying luxury goods. But we’ll have to see where this ends up.”

MR. ABE, who faces elections in July in the upper house of the Diet, Japan’s parliament, has not unveiled all the details of his policy, which comprises “three arrows”: monetary easing, fiscal policy and structural reform. Monetary easing is the only one of the three that is substantially under way. It appears to be largely responsible for the yen’s weakening and could have a sharp impact.

Forced for many years to adjust to competitive pressures from overseas, Japanese companies said in a government survey last year that they were profitable at an exchange rate of 84 yen to the dollar, a big change from 1986, when they said they needed a rate of 175 yen to the dollar.

The current rate of more than 100 yen to the dollar will make many export-oriented companies much more profitable, said Eileen Dibb, a portfolio manager and Japan specialist at Pyramis Global Advisors, the institutional arm of Fidelity Investments. Her portfolios include Toyota and Fuji Heavy Industries, and both should benefit from the yen depreciation, she said. While the cheaper yen could heighten trade frictions, Mr. Abe says he would like Japan to join the negotiations for the Trans-Pacific Partnership, an Asia-Pacific free trade pact supported by the Obama administration.

Ms. Dibb is bullish on the Japanese stock market, saying it is still quite reasonably priced even after its recent run. In 1988, for example, the Topix traded at a price-to-book ratio of 6.5, compared with only 1.4 today, yet current earnings are attractive and strengthening. For the first time in years, she says, the outlook is extremely positive. “It’s as though Japan has turned the lights back on,” she said.

Mr. Abe has adopted a stimulative fiscal policy. It may give the economy a short-term boost, but in a speech in April, Christine Lagarde, managing director of the International Monetary Fund, warned that Japan’s fiscal policy “looks increasingly unsustainable,” saying its debt-to-G.D.P. ratio is now nearing an extraordinarily high 245 percent.

Japan has some factors in its favor, however, making it quite different from debt-burdened countries like Greece, said M. Campbell Gunn, portfolio manager of the T. Rowe Price Japan fund. Japan’s debt is overwhelmingly financed by its own citizens, he noted; it is denominated in its own currency, and Japan runs a steady current-account surplus, all of which insulate it from bond market pressure.

Furthermore, he said, Japan can reduce debt by privatizing or more efficiently operating billions of dollars worth of state-owned assets, like the nation’s ports and its postal system, which doubles as a gigantic savings bank. “Japan now is in some ways like the U.K. before Margaret Thatcher,” he said. “There is much that could be done if the government wanted to do it.”

Structural problems, however, are major impediments to economic growth. Japan’s population has been aging and declining in size, said Roger Aliaga-Díaz, a senior economist at Vanguard. Unless Japan permits enough immigration to offset this, he said, demographic constraints are likely to trim gross domestic product by 1.3 percentage points a year. “That’s a big hurdle for Japan,” he said.

Shifts like raising the retirement age and removing impediments to work force participation by women could improve matters, but improvements are likely to be slow in coming, he said.

Still, Japan’s markets have awakened, its economy may be reviving, and the flood of yen is certainly flowing into other markets around the world, Mr. El-Erian said. “This is an ambitious effort,” he said. But, he added, “Japan’s mounting debt load and difficult structural problems make this program a very high-risk and high-reward one.”

Strategies: Forecast for a 20,000 Dow Still Holds

LAST July, when the Dow Jones industrial average was still stuck below 12,900 and investors were seeking safety in bonds, Seth J. Masters made a startling argument.

Mr. Masters, the chief investment officer of Bernstein Global Wealth Management, said that people were so traumatized by the financial crisis that they were seriously underestimating the stock market. In fact, the chances were quite good that by the end of the decade, the Dow would rise more than 7,000 points and reach 20,000, he said.

In some important ways, he said, stocks at that moment had become safer than bonds. “This argument may seem provocative,” he told me back then. “But that’s only because market conditions are so unusual, and so many people have become so pessimistic.”

Last week, Mr. Masters made essentially the same argument, but it sounded much less provocative. In fact, after months of soaring prices, new stock market records and minuscule bond yields, it may even be the Wall Street consensus.

“It seems we’re somewhat ahead of schedule but I think we’re still on track for Dow 20,000 by the end of the decade,” Mr. Masters said last week. “The odds have just gotten better.” And despite the stock market’s recent meteoric rise, he said, stocks still look relatively cheap, certainly compared with bonds.

“It’s not that the expected return on stock right now is really that high,” he said. “It’s that the return on government bonds is indubitably very low.”

That unfavorable verdict on bonds is no accident. In a sense, it’s the policy of the Federal Reserve. Ben S. Bernanke, the Fed chairman, says he is trying to make traditionally riskier assets like stocks relatively attractive, increasing investors’ wealth and in that way stimulating the economy.

As far as the bond market goes, the yield on a benchmark 10-year Treasury note was only 1.5 percent when I spoke to Mr. Masters in July, and it is about 1.9 percent now. To put those yields in perspective, the average for 10-year bonds since 1962 has been more than 6.5 percent, according to quarterly Bloomberg data. In other words, since last July, bond yields have risen by the tiniest bit, and they remain extraordinarily low, on a historical basis.

For bond investors, particularly retirees, these low yields pose a serious dilemma. “This situation creates great problems for people trying to live off the income they can get from bonds,” Mr. Masters said. (I’ll explore this issue further in a future column.)

For now, it’s worth noting that the problem for income-seekers will sort itself out eventually when bond yields rise and prices fall. But that shift is likely to inflict considerable harm on unwary investors.

That day of reckoning keeps receding, however, as global economic growth and inflation remain constrained. That alone tends to keep bond rates low. Furthermore, government spending cuts like the budget sequestration in the United States have reduced economic growth substantially, in the view of the International Monetary Fund and other forecasters.

And as long as unemployment is high and inflation is low, the Fed says it will continue to keep short-term interest rates near zero — and buy $85 billion a month in long-term bonds and other securities. Other central banks have made similar promises. At least for a while, then, historically low interest rates seem likely to persist, for short-term bills as well as for long-term bonds.

The likelihood of low bond yields helps explain the relatively high stock market returns expected by Mr. Masters. And a new study suggests that those yields are the main factor behind the bullish stock market consensus of financial analysts on Wall Street and in academia.

Fernando Duarte and Carlo Rosa, two economists at the Federal Reserve Bank of New York, described their study last week in “Are Stocks Cheap? A Review of the Evidence,” a posting on the New York Fed’s Liberty Street Economics blog. They analyzed 29 separate economic models and found that most predicted extremely high stock returns for the next five years. Why? There are many wonky reasons but in the end, they said, it is “mainly due to exceptionally low Treasury yields at all foreseeable horizons.”

Strategies: Central Banks’ Moves Are Giving Global Stocks a Lift

The overall economy is sluggish at best, and unemployment has remained above 8 percent since early 2009. Yet despite a decline last week, stock investors have been on a roll. In the three months ended on Friday, the Standard & Poor’s 500-stock index rose 5.8 percent. In Europe, stocks fared even better for the quarter, with the Euro Stoxx 50 index up 8.4 percent. Japan was a laggard, as the Nikkei index dropped 1.5 percent, but in Hong Kong the Hang Seng index rose 7.2 percent.

During much of this period, the Federal Reserve and other central banks have been flooding the planet with money. Cause and effect is hard to prove, but it seems reasonable to assume that the central banks have had something to do with the markets’ buoyancy. “Clearly central bank actions have been a major factor in the market rally,” Ethan Harris, chief North American economist at Bank of America Merrill Lynch, wrote in a recent report. News reports of “super dovish” announcements by the Fed and the European Central Bank correlated neatly with stock market climbs, he found.

On Sept. 6, for example, Mario Draghi, president of the European Central Bank, said that under certain conditions it would buy unlimited amounts of government bonds, a move that could lower borrowing costs for Spain and other troubled countries in the euro zone. Stocks immediately rose around the world.

The next week, the Fed met the market’s expectations, and then some. It extended its plans for maintaining near-zero short-term interest rates into the middle of 2015. And it announced that it would increase its bond-buying to a total of $85 billion a month for the rest of the year, with a focus on mortgage-backed securities, a program aimed at giving the housing market another lift. What’s more, the Fed linked the duration of its loose policies to the state of the job market. As long as the unemployment rate remained unacceptably high, the Fed planned to maintain its expansionary monetary policy, Ben S. Bernanke, the Fed chairman, said in a news conference.

“We will be looking for the sort of broad-based growth in jobs and economic activity that generally signal sustained improvement in labor market conditions and declining unemployment,” Mr. Bernanke said.

Last week, however, the markets gave up ground. The central banks aside, it’s easy to see why the bullish mood might darken quickly. A partial list of dangers includes rising tensions in the Mideast, a contentious election campaign and a looming “fiscal cliff” in the United States, an unresolved and multifaceted financial crisis in Europe, and a global economy that is far from robust.

Little of this would appear to augur well for stocks, except that the central banks have tilted the odds on the bullish side, at least for now, some analysts say.

“A modestly growing economy with the cyclically sensitive sectors at still-depressed levels is a relatively stable and safe, if not exciting, environment,” said Larry Kantor, head of research at Barclays, in a recent report. “When this is combined with a central bank committed to aggressively supporting growth through higher asset prices, it amounts to a very attractive environment for taking risk.”

In fact, Barclays calls the current version of its flagship quarterly research publication “Global Outlook: Don’t Fight the Fed.”

OF course, no one knows where the markets are going day to day. After their recent run upward, and even without the emergence of any nasty news, stocks could easily “consolidate,” that is, decline for a while before moving upward again. And because the global economy is already rather weak, an external shock — a disruptive geopolitical event — could alter perceptions abruptly.

Some analysts are not upbeat even now. The Economic Cycle Research Institute, an independent forecasting organization with an excellent record, says it believes that the United States is already in recession, and that action by the Fed won’t change that. “Unfortunately, the economy is just going to have to ride out the business cycle,” Lakshman Achuthan, chief operations officer of the institute, said recently. “The Fed’s actions have been increasingly ineffective.” The relationship between the economy and the stock market is complex, he said, and it’s not always clear whether the market is predicting the direction of the economy, reacting to it or responding to other factors.

Robert Rodriguez, managing partner and chief executive of FPA, an asset management firm in Los Angeles, says it’s possible that fund managers, seeking to bolster their returns, will “continue to pile into stocks in the remainder of this year and push them to even higher levels.” But he says he believes that the market is already overextended, and his firm has begun to reduce its stock exposure.

Mr. Rodriguez anticipated the subprime mortgage crisis and the financial crisis. But, as he acknowledged ruefully in an interview, he “was early, and got out of the market too soon, and could well be doing so again.” Still, he says he fears what he calls “the unintended consequences of the expansionary activities of the central banks.”

Another credit bubble is likely if the banks persist in trying to prop up the global economy, he said. As he sees it, the fundamental problem in the United States can’t be solved by the Fed. “We must get our fiscal house in order,” he said, “and we have only a limited amount of time to do it.”

For the next several months, though, he suspects that Wall Street’s fascination with the Fed may well keep stocks rising.