Today, after the market closed, the Fed Chairman announced that its massive bond purchases would continue – lasting at least until the jobless rate improves. That flat contradiction of the declaration, of just a few days ago, that its bong buying would level off, has significant impacts on stock prices.
We have analyzed the close correlation between the S&P500 and the interest rate of the 10-year Treasury Bond several times in the past few weeks. Today’s update confirms this relationship.
(Rather than plotting the converse link between higher interest rates and lower S&P500 prices, we use the inverse of the interest rate -that is, the value or market price of the bond- because that moves in the same direction as stock prices.)
Our diagram shows the how tightly the S&P500 has been paralleling the Ten year bond prices since the middle of June. According to this map, we can expect a sharp S&P500 decline in a few days.
That is, until the Fed reversed its announced policy today. That new Fed program surely means a deferral, and a shift in the parameters, between lower stock prices and the interest rates of ten days ago.
DJIA -.06 percent
NASDAQ .47 percent
S&P500 .02 percent
