BofA Says Quantitative Tightening Would Shave 7% Off S&P 500
- The benchmark gauge has gained over 4% since QT began in June
- Fed’s QT plans may already be priced in, says Jane Edmondson
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Stocks are already facing numerous headwinds stemming from the Federal Reserve’s aggressive interest-rate hikes. But if history is any guide, the winding down of the central bank’s balance sheet poses a risk to equity prices, according to Bank of America.
When looking at the historical relationship between the Fed’s bond purchases and S&P 500 returns from 2010 to 2019, the bank concluded in a research note on Monday that quantitative tightening through 2023 would translate into a 7% drop in the benchmark gauge from current levels. According to BofA, quantitative easing has explained more than 50% of the movement in the market.