This is just the beginning of what’s to come. There’s no way in hell we already hit bottom. That’s not to say we won’t continue to see more green next week or even the week after next, but it will inevitably come back down, a lot further.
From the bottom in March of 2020, when the Fed started QE pumping money into the markets, to March of 2022 when they stopped, the S&P 500 went up 119%. Now, starting June 1st, the Fed will begin QT. Pulling trillions of dollars out of the markets over the next 5 years or so. These market levels are NOT sustainable with no more fake money being pumped into it. Yet alone with money getting pulled out of the market.
Along with the record high inflation, people seem to forget, or at least seem to overlook the fact that over the last 2 years, roughly 40% of all US dollars were printed..
The Fed increased its balance sheet from $4 trillion to roughly $8.5 trillion dollars in the last 2 years as well.
“The Fed plans to reduce its $8.5 trillion balance sheet beginning June 1, when it will no longer reinvest proceeds of up to $30 billion in maturing Treasury securities and up to $17.5 billion in maturing agency mortgage-backed securities per month. Beginning September 1, those caps will rise to $60 billion and $35 billion, respectively, for a maximum potential monthly balance sheet roll-off of $95 billion.”
The Fed plans on reducing their balance sheet for the foreseeable future. Their goal is to have reduced their balance sheet to $5 trillion by 2027.
Now, one other major thing I need to mention. Back in 2014 when the Fed announced QT for the first time, they didn’t begin the actual process until 2017. They only managed to roll off roughly $800 billion from their balance sheet before deciding to change course due to the markets crashing (S&P dropped roughly 20% in 2018 before they stopped QT in October).
S&P has already dropped 20%, and the balance sheet reduction hasn’t even started. I don’t see any possible way the Fed could stop the balance sheet reduction just because the markets are crashing this time around. They dug too deep of a hole, and the only way out is to fuck the markets for a few years. There’s no way around it.
EDIT: I forgot to mention that a 29% drop in SPY from the current ATH would put SPY at $340. So to the permabulls always saying “no way SPY sees $300 again” or “$380 was bottom” … Good luck. Majority of legitimate “crashes” have seen upwards of 50% down from ATH over the course of a few years. If we were to see a true market crash over the coming years, which is likely, a 50% drop in SPY would put it around $240.
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