6 Must-See Charts On What QEII Has Done To The Market

QE

Photo: Morgan Stanley

Why is everyone obsessed with the end of QE2?Simple, there’s a lot of evidence to suggest that it’s had a strong impact on the market’s behaviour during its run, and that absent QE, things will look at lot worse.

In a new note, Morgan Stanley’s Adam S. Parker, Ph.D writes:

It is possible that we are at the start of a long, capital spending and export-fuelled recovery that would drive consistent EPS growth. This is not our base case, however. Absent a fundamental explanation for the S&P 500 rally (GDP deteriorated meaningfully during Q1), it is natural to consider whether the $600bn Fed asset purchase program (QE2) is a contributor to the rally.

During periods of QE, the market recovers a lot faster

Correlation between the Fed's balance sheet and the S&P has been dramatic

Meanwhile, The market and the economy have NOT been correlated

Without the Fed, there's a good chance stocks would have gone down

Hedge fund correlation to the market is a lot more dramatic during QE periods

Thus without QE, expect the market to slide

For more signs that the economy is not strong

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.