‘Long in the Tooth’ Bull Market Fed Fueled
$DIA, $SPY, $QQQ, $VXX
This ‘Long in the Tooth’ Bull Market celebrated its 7th anni on 9 March. Its gains are explained by just 1 thing, US Fed monetary policy..
The S&P 500 (NYSEArca:SPY) 2X’d in value from November 2008 to October 2014 on the US Fed’s QE (quantitative easing) asset purchasing program.
After 3 rounds of QE, where the Fed shoveled billions of dollars into the bond market monthly, the Fed’s balance sheet went from $2.1 to 4.5-T.
Previous Bull Markets lasting several years can also be explained by single factors each time.
Scouring hundreds of different factors, a Key analyst pared them it down to 4, they are as follows:
- GDP data 5 years forward
- Household and nonprofit liabilities
- Open market paper (debt)
- Fed assets
At different time frames, only 1of those was the single biggest driver of the market and was confirmed with regression analyses.
He isolated each factor calling them “eras” for the stock market.
From after World War II until the mid-1970’s, future GDP outlook explained 90% of the stock market’s move, according to his statistical analysis.
GDP growth lost its sway on the market in the early 1970’s with the rise of credit cards and consumer debt.
Household liabilities grew with plastic 1st, followed by home mortgages, until the real estate crash of the early 1990’s. The analysis shows debt explained 95% of the entire market’s move during this frame.
The period between the mid- to late-1990s until 2000 was marked by the tech bubble.
While stocks took much of the headline, that frame saw heightened activity in the commercial paper (debt) market.
Startups and young companies sought cash beyond their share values to fund their operations, and regression analysis shows commercial paper increases could explain as much as 97% of the tech bubble.
Just after the tech bubble burst, the housing bubble began, once more in the form of mortgages and other debt. That drove 94% of the market’s move for the 1st several years of this Century.
As the financial crisis reached a peak in Y 2008, as the Bernanke Fed took to flooding the financial market with dollars by buying up bonds.
Simultaneously, interest rates fell dramatically, as bond yields move in the opposite direction of bond prices.
Given the facts, the Fed is responsible for over 93% of the market from the start of QE til today. During 1-H of T 2013, the Fed caused the entire market’s growth.
Since the Fed stopped buying bonds in 2-H of Y 2014, the S&P 500 has been batted around in a 16% range and is more or less where it was when the QE finished.
Investors need to anticipate the next driver.
With the end of the QE era, we have entered the interest rate world, meaning that for any investor trying to figure out what to do, Step 1 is starting with a macro strategy.
Have a terrific weekend.
Paul Ebeling
HeffX-LTN
The post ‘Long in the Tooth’ Bull Market Fed Fueled appeared first on Live Trading News.