Has Quantitative Tightening killed the bull market?

Fabian Scheler

November 1, 2023

The massive asset purchases by central banks post-2008 have raised questions about its impact on the stock market and the risks arising once balance sheets start to shrink.

5 Minute Read

Following the Great Financial Crisis, central banks worldwide have purchased financial assets, primarily government bonds, worth trillions (QE). 2022 finally brought a reckoning, including not only a significant surge in yields but also a long-awaited balance sheet contraction (QT). It is time to revisit the old question of to what degree central banks' balance sheets affect the market.

  • The outright purchase of financial assets by central banks, summarized under the term "Quantitative Easing" or "QE" was a continuous companion of the long bull market following the Great Financial Crisis.
  • This, in turn, has led many market participants to believe in a causal relationship between extraordinary monetary policy and stock market gains and fueled worries that markets can't rise without this support and may even crash when the FED shrinks its balance sheet ("Quantitative Tightening" or "QT").
  • While we note that stock market returns were indeed higher on average during weeks with positive changes in the FED's balance sheet's size, the relationship between the two variables is generally weak.
Access the paperGreifen Sie auf das Papier zuAccéder au papier