S&P 500 and Fed liquidity: A Close Relationship Shown in Chart

A chart from Apollo Global Management chief economist Torsten Slok shows a close relationship between S&P 500 performance and net Federal Reserve quantitative easing (QE) since the pandemic began. The high correlation between Fed net QE and the S&P 500 suggests that Fed liquidity is a crucial driver of the stock market. However, with the Fed turning more hawkish and continuing quantitative tightening, the downside risks to equities are growing.