Over the last few years, on many occasions, I provided analysis on the correlation between the changes in Federal Reserve's balance sheet and the S&P 500 index. To wit:

“This is something that I discussed previously. The chart below shows the historical correlation between increases in the Fed's balance sheet and the S&P 500. I have also projected the theoretical conclusion of the Fed's program by assuming a continued reduction in purchases of $10 billion at each of the future FOMC meetings.”

“If the current pace of reductions continues it is reasonable to assume that the Fed will terminate the current QE program by the October meeting.”

Of course, the Fed did terminate the latest rendition of “QE” in October of last year. The result was an immediate market swoon as market participants threw a “tantrum” over the removal of the proverbial “punch bowl.” However, that correction was short-lived as Central Banks jumped into the “QE Pond” to support asset prices globally either directly or verbally.

However, despite Japan and the ECB directly intervening into their respective financial systems, there has not been much effect on asset prices domestically. This should not be surprising as those interventions do not directly impact the “trading desks”of major Wall Street banks to the same degree that the Fed's QE programs do.This is why historically when the Fed has ended a “QE” program, the markets have begun a more severe correction process. In both previous cases, the Fed leaped into action as the market decline almost immediately triggered a sharp decline in economic activity. It is important to remember that “QE” programs are specifically designed to boost asset prices to lift consumer confidence and ultimately economic growth. What became clear is that without QE, there was no growth.