Fed Funds Rate Impact on SPX
The chart shows market cap for the Federal Funds rate. Let's use the analogy that the chart is the "cost" for each additional unit of market cap we are "buying" from the Fed? When times are good, "buyers" are plentiful, and the "price" goes up. When times are bad, "buyers" disappear, and "sales" go down. But the Fed doesn't want sales to fall so they've over compensated by dropping the "cost" (Fed Funds Rate) incredibly fast.
With each successive event (2000, 2008, 2020) the Fed has dropped the price faster and harder. The chart had no gaps down in the 2000 event, small gaps down in 2008, and a huge gap down in 2020. The faster and stronger response helps SPX stay elevated longer because of the "buyer's" reaction to cheaper prices. (Red arrows are ratio peaks. Orange arrows are market peaks.) Notice how the market peaks are moving farther and farther to the right of the red arrows. This time the response or "price cut" was so great that the market descent or "sales" didn't reduce. It didn't stay level. It went up! The Fed did way too much!
Now the question is will the "price" rise before the buyers realize that there's reason to acquire and save what is perpetually free?
But what if zero isn't the floor of the Fed Funds Rate? Would the Fed actually pay the banks to "acquire and save"?
Even the ECB hasn't done that yet. Anyone know if the BoJ has?
With each successive event (2000, 2008, 2020) the Fed has dropped the price faster and harder. The chart had no gaps down in the 2000 event, small gaps down in 2008, and a huge gap down in 2020. The faster and stronger response helps SPX stay elevated longer because of the "buyer's" reaction to cheaper prices. (Red arrows are ratio peaks. Orange arrows are market peaks.) Notice how the market peaks are moving farther and farther to the right of the red arrows. This time the response or "price cut" was so great that the market descent or "sales" didn't reduce. It didn't stay level. It went up! The Fed did way too much!
Now the question is will the "price" rise before the buyers realize that there's reason to acquire and save what is perpetually free?
But what if zero isn't the floor of the Fed Funds Rate? Would the Fed actually pay the banks to "acquire and save"?
Even the ECB hasn't done that yet. Anyone know if the BoJ has?
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