QE/QT and equity markets

reviewing the market impact of quantitative operations

how much is QE/QT affecting US stocks?

In the past 6 months:

• the size of FED balance sheet has been rising and the S&P 500 equity index has been falling ; their correlation for the period is negative and equal to -0.06 ( weak)
• this suggest that the relationship between stocks and quantitative operations in the period is inconclusive.

Zooming further out, these are the longer-term correlations between bond yields and ECN balance sheet:

• 1-year: -0.79 (robust)
• 3-year: -0.93 (robust)
• Max period observed in the chart: 0.83 (robust)

IntroAs anticipated in the previous page, QE/QT are part of the policy tools for the FED and they influence both markets and the economy. Here we try to assess how extensively Quantitative operations by the FED have affected US stock markets recently.

Chart guideWe can see in the chart above both the accumulated stock of assets in the FED balance sheet (shaded area) and US equities, for a graphical examination of their long-term and short-term relationship. The key point here is to find out if quantitative easing or tightening are effectively driving stock prices at the moment, to then make the right investment decisions related to our bond allocation in the portfolio.

QE/QT and bond markets

reviewing the market impact of quantitative operations

how much is QE/QT affecting US bonds?

In the past 6 months:

• the size of FED balance sheet has been rising while US 10yr Treasury yields have been rising too
• their correlation for the period is positive and equal to 0.30 ( weak)
• this suggest that the relationship between bond yields and quantitative operations in the period is inconclusive.

Zooming further out, these are the long US-term correlations between bond yields and ECN balance sheet:

• 1-year: 0.63 (fair)
• 3-year: -0.36 (weak)
• Max period observed in the chart: -0.08 (weak)

IntroAs anticipated in the previous page, QE/QT are part of the policy tools for the FED and they influence both markets and the economy. Here we try to assess how extensively Quantitative operations by the FED have affected bond markets recently.

Chart guideWe can see in the chart above both the accumulated stock of assets in the FED balance sheet (shaded area) and the 10-year USman bond yield - as a proxy for USDopean bond yields - for a graphical examination of their long-term and short-term relationship. The key point here is to find out if quantitative easing or tightening are effectively driving bond yields, to then make the right investment decisions related to our bond allocation in the portfolio.