How much QE has been priced in?
Considering the slowing of the global economy, the global trade tumbling and the falling earnings revisions, it is safe to assume that the outperformance in the equity market was supported by the latest Fed/ECB massive monetary easing. The question, however, is how much of it has already been priced in. The main indices have been pretty stable post-FOMC. Looking to the chart below, it becomes evident that in the last three months, the S&P 500 has outperformed the Fed balance sheet by about 220 points. According to David Rosenberg’s estimations, every $40 billion of QE boost to the Fed’s balance sheet (QE3 at a pace of this amount per month) adds about 20 points to the S&P 500. Combine the above data and you will easily guess that the 220 points correspond to 11 months of additional QE.
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