This chart from Yardeni Research is a few weeks old but the market has mostly gone sideways to slighty up since up since; I've seen some updated charts since which essentially are identical. It raises the question of do we simply not fight the Fed during their unconvential actions. Below we see the stock market action in blue shade during QE1, QE2 (please note the vertical line that designates when Bernanke gave the "all clear for QE2" signal at Jackson Hole, WY in August 2010), and Operation Twist. When those operations were not in full swing the market fell from 9-11%. That contrasts with double digit gains of anywhere from ~15 to 35% when the Fed is easing. Is it really that simple?
If the answer is yes – that leads us to the next comment. In 2011 the market begin weakening around this time as the door on QE2 was closing with no new program in sight. Contrast this to 2012 where talk of 'sterlized bond buying' and a Fed who refuses to refute these ideas even in light of "improving economic data". So as Operation Twist ends in June, and talk of sterlized bond buying to replace it happens, will back half of 2012 just be "that easy"? And does April-May… the only period the market may doubt a new easing program is coming down the pike, represent the only time this year the market "would be allowed" to correct? Or does the handoff of Operation Twist to an new easing program immediately meaning all we get is "blue shade" in 2012? Food for thought.
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