The Bears' Favorite Chart

One of the bears’ favorite charts shows the relationship between the S&P 500 and the size of the Fed’s balance sheet. The former rose 609% from March 9, 2009 through January 3, 2022 (chart). Over this same period, the Fed’s assets rose 1,005% from $760 billion in March 2009 to $8.4 trillion in January 2022. That was all wildly bullish for stocks and bonds.

On January 5, 2022, the Fed released the minutesof its December 14-15, 2021 FOMC meeting. It included a long section titled “Discussion of Policy Normalization Considerations.” It signaled that the Fed soon would respond to rising inflation by reducing the size of its balance sheet.