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


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

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