Ever since I saw a comment talking about it in the daily discussion, I've been trying to understand it. I'm here asking for opinions so I could get a better understanding.
So, one main talking point for the bull market since Covid 2020 March, is the Fed doing this thing called Quantitative Easing. Essentially meaning they're injecting money into the market, buying bonds and mortgage securities. This created a bull market where a lot of people started investing and would be making gains.
Inflation going crazy, blablabla, you guys know all those talks for the past months.
So, the Fed is going to do Quantitative Tightening, starting June 1st. Basically reversing what they did for Easing, meaning they'll be selling the bonds and mortgage securities. From my understanding, they're not actually selling assets outright, but would be conducting passive sales by not replacing maturing securities.
Now this is where I'm confused and am seeking for your wisdom. If they're not selling outright, if I understood their approach to QT correctly, the market shouldn't be met with much selling pressure right?
Or is this the part where we should be worried because, just like we don't go against the Fed when they decided to print money in 2020, we should stay cautious if the Fed is selling?
Correct me if I'm wrong, they did QT in the past, started in Oct 2017 to Sep 2019. If I look at the chart for SPY, there're two “big drops” during 2018. I don't know whether this was the effect of QT, or were there something else causing those drops. Market did recover within months after those drops.
TL;DR: QE vs QT. Market up or down if you were to make a guess based on what the Fed's doing?
Disclaimer: I have no short positions, just some stocks bought at near ATH.
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