From an operational perspective, there is no reason why the market should outperform on a day when the Fed performs its POMO’s, but this is an interesting fact from Goldman Sachs via Zero Hedge:
“On the interplay between the FED and STOCKS: Since Sept 1 – when QE was becoming a mainstream focus – if you only owned S&P on days when the Fed conducted Open Market Operations (in US Treasuries), your cumulative return is over 11%. in addition, 6 of the 7 times when S&P rallied 1% or more, OMO was conducted that day. this compares to a YTD return of 5.8%. the point: you would have outperformed the market 2x by being long on just the 16 days when – this is the important part – you knew in advance that OMO was to be conducted. The market’s performance on the 19 non-OMO days: +70bps.”
The Fed certainly doesn’t help their credibility when this sort of stuff is being thrown in people’s faces. It’s one thing to imply that you’re going to print millions of dollars. It’s a whole other thing to admit that you want to run a ponzi economy (as Brian Sack directly did). Amazing way to run an economy….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.