Earnings, schmearnings. Is what really matters just liquidity?
This incredible chart, from Apollo Global Management chief economist Torsten Slok, shows the close relationship between S&P 500 SPX performance and net Federal Reserve quantitative easing since the pandemic began.This incredible chart, from Apollo Global Management chief economist Torsten Slok, shows the close relationship between S&P 500 SPX performance and net Federal Reserve quantitative easing since the pandemic began.
“Since SVB collapsed, the Fed has been adding liquidity, and the S&P 500 is up more than 10%. The high correlation between Fed net QE and the S&P 500 seen in the chart below suggests that Fed liquidity is a crucial driver of the stock market,” said Slok. It should, of course, be noted that dual Y charts are inherently misleading, since the magnitude can be altered just by playing with the axes. That said, the idea that liquidity is a key driver of financial asset performance is widely shared. One of the concerns coming out of the debt-ceiling impasse was the impact of delayed Treasury bill issuance.
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