Previously in What is fueling S&P 500? we established that currently S&P 500 price is highly correlated with FED’s total assets value in balance sheet. Things are turning really quickly though, last week S&P 500 had its worst week since 2011. But how low can it go? Now we check the correlation between $SPY and FED’s total assets value again, and here might have the answer for you:
$SPY Price vs. FED total assets since 2003 until 2015-08-23
According to this correlation, if FED do not initiate QE4, $SPY can easily hit 185 and test below; but if FED really starts to unwind it’s balance sheet and raising rates, it is not unimaginable to see a secular bear markets in the next few years.
What are your thoughts?