- The Federal Reserve's balance sheet has reached $7.82 trillion at last count. Expanding at roughly $120 billion a month, it will be over $8 trillion by the end of this quarter, if the Fed's bond purchases remain on target.
- My guess is that some type of shakeout is coming for the broad market indexes, but it will remain limited to around a 10% decline, if that. That's about the size of the maximum correction we have so far at this rate of balance sheet expansion.
- QE affects the level of the stock market. When the Fed shrinks credit spreads, it sends a signal to investors to buy stocks. But spreads are not shrinking because the economy is improving, but because the Fed is pushing them there.
For further details see:
The Fed's Bull Market Strategy