This is widely presented as the only chart that matters:
Or like this:
Namely, that QE has been the driver of the stocks bull market and its corrections, and the Fed is in control.
Yet, if we take a bigger picture view of the correlation it doesn’t look so compelling:
Furthermore, the two corrections of 2010 and 2011 took place once we hit typical topping levels of bullishness, overbought indicators and divergences.
Additionally, the stocks bull market took off at the solar minimum and, subject to confirmation, is topping out at the solar maximum, in line with history, rather than it being a Fed-induced bull market by QE.
Japan’s most aggressive programme yet, Abenomics 2013-2014, has also thus far failed to produce equal results in the economy and stock market.
In short, QE is overhyped. We would have had a bull market anyway from solar minimum to solar maximum. The corrections of 2010 and 2011 would have happened because of excess bullishness, overbought and technical indicators and divergences. Rather, the wealth effect of stock market strength into 2010 and 2011 aided the Fed in stopping QE, and their corrections in restarting it. QE was coincident or even lagging. The first two charts in the post look convincing, but under scrutiny are less so.
I am not saying QE is impotent, but it is not the driver for this stocks bull. ‘Fed policy trumps all’ is instead the mantra for the stock market mania into 2014, just as ‘valuations revised from profits to expectations’ was the mantra for the stock market mania into 2000. In fact both were solar maximum induced manias, and both excuses for extreme overvaluations. The sun did it, not the Fed or the revolution of the internet.
What has then QE achieved? Shoring up bank balance sheets, shoring up confidence, pressing down treasury yields, helping create asset bubbles around the world. As I’ve argued before, the Fed can delay the full impacts of demographics but it cannot overcome, and it is still subject to the solar cycle, not agent. In keeping with that, we have seen a broad range of topping indicators congregating at the solar maximum and I await the validation that passing through that maximum is all that was required to peak and then kill the stocks bull, regardless of what the Fed is doing.
Short term: yesterday we saw a doji candle in the markets and few clues from the indicators, so need to see how today plays out.