Tag: Fed Balance Sheet

S&P 500: Any Juice Left?

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor


The S&P 500 (CME:SP500) closed for the week at 2,472.10, after hitting an all-time record, after gaining 10.5% year-to-date. The S&P’s forward Price-to-Earnings ratio, a key ratio for investors, is 17.8 above the 10-year average of 14. And this brings up the inevitable pondering; is there any juice left in the S&P 500?

In searching for an answer, the intuitive starting point might be the S&P’s valuation. We’ve already pointed out that the S&P 500 is trading at a high valuation compared to its 10-year average. Furthermore, according to Factset research, earnings for the 500 companies which comprise the S&P 500 are expected to rise by 9.3% as compared to 9.26% in 2016. Now, while that is a solid figure, it also suggests earnings growth is not accelerating and may even suggest the acceleration in earnings growth is over. And if earnings growth is likely to decelerate in the coming years it cannot account for the S&P500’s 17.8 PE ratio. So, there’s no valid reason why the S&P’s valuation would be the catalyst for another surge. Why not? Simply because it's too high. In fact, the real catalyst isn’t within the S&P500 or even within the stock market; instead, the real reason lies within the Bond market. Continue reading "S&P 500: Any Juice Left?" →

Why Is The Federal Reserve Not Selling?

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor


On March 15th, the Federal Reserve Chairman, Janet Yellen, announced that the Fed would raise its target rate to 0.75-1.00% from 0.5-0.75%. Yellen also stressed, in a clear, hawkish tone, that the United States economy is doing well. After roughly three months of “hints” embedded in the Fed’s many statements, that news was hardly a surprise.

But in the same speech, Yellen stressed that the Fed was not ready to start selling the $4.5 trillion in the Treasury Notes, Treasury Bonds and mortgage papers that it holds on its balance sheet. Instead, Yellen stressed that the Fed sees rate hikes as the monetary tool. Further, rate hikes, as a tightening measure, must first be exhausted before the Fed would start selling those trillions. That was a clear retreat from the hints the Fed had dropped in the weeks which followed President Trump’s inauguration.

In fact, one could go so far as to say Yellen’s rhetoric, with respect to the Fed’s balance sheet, has been dovish; the way Yellen specifically emphasized how cautious the Fed is about the prospect of trimming its balance sheet singled that option out as some kind of a “bomb” that the Fed doesn't really want to drop and which could send markets into panic mode. If, indeed, the US economy doing so well, why then is the Fed not ready to roll back Quantitative Easing, a stimulus measure generally considered life support for the banking system? Continue reading "Why Is The Federal Reserve Not Selling?" →

What Happens When The Fed Starts Selling?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


The financial markets have been fixated for years at the prospect of interest rate increases by the Federal Reserve but have largely ignored the $4.5 trillion elephant in the room, namely the Fed’s gargantuan balance sheet. But last week several members of the Fed began publicly discussing their support to finally start winding down that massive portfolio.

Way back before the global financial crisis, the Fed’s portfolio held pretty steady in the high $800 billion to low $900 billion range. Then, as the crisis hit full force in the last three months of 2008 after the Lehman Brothers collapse, the portfolio more than doubled, ending that year at slightly north of $2 trillion. While the worst of the crisis may have been reached at that point, that was only the beginning of the balance sheet’s growth.

Between the end of 2008 until the end of 2012, the Fed’s portfolio grew gradually by another $800 billion or so, before spiking again, adding another $2 trillion over the next two years as the Fed embarked on quantitative easing. Eventually the portfolio reached $4.5 trillion, including both Treasury and mortgage-backed securities, at the end of 2014, where it has held largely steady ever since. Continue reading "What Happens When The Fed Starts Selling?" →