Why the markets are still going up

At the beginning of the year, I anticipated there will be some sort of pause, or a pull back but that didn’t happen. The reason behind that was the higher interest rates, along with QT will result in financial conditions being tight, will drive the market down.

If you se the below graph, how when the FED balance sheet started going down in 2022 and market going down with it.

Then what changed? is after Silicon valley bank failure FED introduced BTFP and putting money back.

Now, FED has announced the end of this. This along with QT, will again bring tightening of the financial condition, before FED starts cutting interest rates down. May be this will result in a market pullback before market resuming higher. This window is going to be small, blink you miss it. Because, this is an election year, and FED cannot wait past July to start cutting interest rate as that would be viewed political. So… we are going to get at least one rate cut before that is my guess.

Separately we have seen market going up non-stop since October low’s. A 10% decline would be nice!

PS: I am not a macro analyst, I am not even trying to play one, these are just some random thoughts. I wanted the market to go down, so, I am looking for reasons for that.


Avast! There be troubled waters ahead.

(you find what you seek)

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I was struggling with the chart that followed graph then I realized that it is from June of last year.

The author states:

The high correlation between Fed net QE and the S&P500 seen in the chart below suggests that Fed liquidity is a crucial driver of the stock market.

Since June 2023, the Fed has resumed QT and the market is MUCH higher, so would not one also state that the high correlation between Fed net QT and the S&P500 suggest that it is driving the market?

Who doesn’t actually believe the above but the logic of correlation should work both ways.

The effects of QT are negated by the liquidity provided by the BFTP.

However, my expectation is now that BFTP is coming to an end, a large amount of liquidity will be removed and the effects of QT should be felt.

Even if the market comes down, It could be simply market raising from October is giving something back, or could be QT. We will see what happens.