CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

QE or Not the SP 500 Has Consistently Rallied Since Fed Repo Operations Began

Article By: ,  Head of Market Research
January 24, 2020 10:32 AM

QE or Not, the S&P 500 Has Consistently Rallied Since Fed Repo Operations Began

11 October 2019.

If that date doesn’t ring a bell for you, you’re not alone…but it’s been arguably one of the most important days for US stock markets over the past few months.

On that date, the Federal Reserve announced that it would be conducting a series of “purely technical” repurchase agreements “to ensure that reserves remain ample” in the financial system. These twice- or thrice-weekly $35B+ injections of liquidity have continued since in a process that traders have sarcastically dubbed “Not Quantitative Easing.” Over this period, the Fed’s balance sheet has grown by nearly $400B, unwinding about half of the “Quantitative Tightening” decrease since the start of 2018:

Source: Federal Reserve, FRED

Repo operations like these are a standard tool that central banks use to manage liquidity in financial systems around the globe, but there’s no denying that we’ve seen an astoundingly consistent rally in the S&P 500 since the Fed’s announcement. As the chart below shows, the S&P 500 has closed below even its short-term 10-day moving average just five times in the 70-plus trading days since the Fed’s repo operations began:

 

Source: TradingView, Gain Capital

According to Quantitative Edges, this is the fewest times that the S&P 500 has closed below its 10-day MA over a 70-day period since 1972, nearly 50 years ago! By this measure, US stocks haven’t seen this consistent of a rally since most of us have been alive.

Of course, as any Statistics 101 student will tell you, correlation does not necessarily indicate causation, but given the remarkably reliable rally we’ve seen, US index traders should definitely be paying close attention to any changes in the Fed’s “Not QE” schedule of repo purchases.


StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024