S&P500 and Fed QE Highly Correlated

Apollo Chief Economist

Since SVB collapsed, the Fed has been adding liquidity, and the S&P500 is up more than 10%. The high correlation between Fed net QE and the S&P500 seen in the chart below suggests that Fed liquidity is a crucial driver of the stock market. With the Fed turning more hawkish and continuing QT, the downside risks to equities are growing.

S&P500 performance and Fed QE
Source: Federal Reserve Board, Bloomberg, Apollo Chief Economist. (FED QE = Fed total assets – Balance of the Treasury General Account – Temporary cash added/drained through Overnight Reverse Repo).
Fed adding liquidity after SVB
Source: Federal Reserve Board, Bloomberg, Apollo Chief Economist

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