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Chart: Here's How Much the Fed Is Affecting the Stock Market

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The correlation between the increase in securities held by the Federal Reserve and the increase in the S&P 500 is alarming.

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A recent article in Forbes titled "You Can Thank Ben Bernanke for 100% of the Stock Market Gains Since 2009" presents data showing that 100% of the equity market gains since January 2009 have occurred during weeks when the Fed purchased Treasury bonds and mortgages. Some very bright people have taken different sides of the debate.
Deciding to take a look at the numbers myself, I went to the Treasury website and pulled down data from the weekly "Factors Affecting Reserve Balances," specifically, the weekly average dollar value of securities held outright by the Fed. This includes Treasury, agency, and mortgage-backed securities. The data from the Fed can be found here.
The chart below graphs 566 weekly observations of this data compared to the S&P 500 (INDEXSP:.INX) from December 2003 through last week. A simple correlation of stock prices vs. QE from the start of the data to the S&P 500 low in early March 2009 is a quite low 0.57. Since that time – I chose the week ending March 6, 2009 -- the correlation has been a rather significant 0.93.


I think I know all I need to know. A taper will topple equities.

Twitter: @Minyanville

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No positions in stocks mentioned.

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