The Fed’s Balance Sheet Is ALL That Matters

 

The Fed’s Balance Sheet Is ALL That Matters As I’ve noted, this trend of intraday swings will not change until the Federal Reserve completes its Quantitative Tightening (QT) program. And based on yesterday’s announcement, the Fed is cutting its balance sheet at the most aggressive level since its efforts started. The Fed slashed more than $40 billion – that’s right, with a B – from its balance sheet last week.

There’s a direct causal relationship between the Federal Reserve’s balance sheet and the performance of the S&P 500.

The market pushed higher largely on the back of lower rate hike expectations. The odds of a Fed funds rate hike by 50 basis points dropped from 50% to 33%.  Markets will celebrate any short-term news, and with put holdings at levels we haven’t seen in more than a decade, there is always a chance of a brutal short squeeze.  It’s important to note – in this macroeconomic environment – that job growth isn’t slowing down. That’s bearish for the market. The Fed wants to cool job growth to a crawl.