Markets still have a 9 Trillion dollar underwrite via the Federal Reserve balance sheet, reflation trade is still on, when it's not. US. Dollar and Yield correlation to Equity prices is becoming narrower play by the day.
Stock markets are most likely falling into a bear market, with a looming crash in there somewhere. Hard to predict, obviously, but regardless the U.S. Fed, like most central banks, are still holding onto trillions in private and government assets as an underwrite since the 2008 and 2020 meltdowns. They maybe trying to reduce the balance sheet, but not dramatically, due to price destabilizing or a stock price collapse. Since, shares prices as the only other liquidity provider on speculation and consumption, as China is the global manufacturing base and it is slowing down with large dashes of inflation on top. Central Banks are certainly stuck in a conundrum.
Chart 1, shows the extreme, but not a crash, sell offs (In-between orange vertical lines: Jan 2022 to now) since the Russian invasion of Ukraine and the Federal Reserve slowly putting interest rates up to combat inflation, which is at it 40 year high.
Chart 2, is the West Texas Intermediate oil price (orange line, overlaid) at $101, with equity prices slightly bid, as opposed to past oil prices spiking, stocks were sold off. How long can stock prices maintain a bid footing? While energy prices are rising?
Chart 3, Is the 9 Trillion dollar answer to why markets are still supported via Federal Reserve balance sheet/s. Green line, separate pane, shows just under 9 Trillion in assets still held on its balance sheet. Orange line, pane below Fed balance sheet is inflation year-over-year, 11 year high since 2009.
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