The Fed's balance sheet hit its lowest level since June 2021 this week, down over $1 trillion from the peak in April 2022
Annual changes in the Fed's balance sheet since 2002... Source: Charlie Bilello
The bull-market is one-year old and the leadership has been unusual
• Since 1980, every single end to a bear market and start of a new bull has been accompanied by a broad rally in stocks, with the Equal Weight Index and small-caps stocks outperforming the S&P 500. • This time is different: the S&P 500 is heavily influenced by the 10 largest companies, which have enjoyed outsized returns. The so-called "magnificent seven" (Amazon, Apple, Alphabet, Meta, Microsoft, NVIDIA and Tesla) are up 77% over the past 12 months. But the S&P 500 Equal Weight Index, which assigns the same weight to all the stocks that are included, is up a more modest 11% for the same timeframe. Small-cap stocks are up 5%. Source: Edward Jones
US Treasuries were bid this week due to the search of "safe havens" on the back of Middle East turmoil
However, ugly auctions on Thursday came as a harsh remainder of the unfavourable supply/demand situation faced by US Treasuries. On the supply side, there is a tsunami of notes and bonds that is going to flood the market. And it is occurring while the Fed, under its QT program, is letting about $60 billion a month in maturing Treasury securities roll off the balance sheet without replacement. With the Fed reducing its holdings, that tsunami of notes and bonds being issued will have to find buyers, and those buyers will have to be enticed by yields. Unless inflation and growth slow down meaningfully, yields are unlikely to drop aggressively. Source: www.wolfstreet.com, Bloomberg
Two different years
Two different reactions by growth stocks. Source: J-C Parets
Maximum 3-month total return 60/40 nominal drawdown
Source: TME, Haver
Total Returns over last 3 years...
MSCI India ETF $INDA: +33% MSCI China ETF $MCHI: -41% Source: Charlie Bilello
Have you ever played Microsoft's games?
Microsoft is the world's largest gaming company, with an astonishing market capitalization of $2,441 billion. Some of Microsoft's popular games include Call of Duty and World of Warcraft. Genuine Impact
In case you missed it:
Fed Balance sheet has dropped <$8tn for 1st time since Summer 2021 on QT. Fed's total assets are now equal to 29.4% of US's GDP vs ECB's 50.9%, SNB's 111.5%, or BoJ's 125.7%. Source: Bloomberg, HolgerZ
