Looming S&P 500 Bear Case Sees 15% Drop on Fed Balance-Sheet Unwind
- Morgan Stanley’s trading team calls QT ‘elephant in the room’
- ‘The liquidity feast is now a famine,’ says Leuthold’s Ramsey
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Bulls getting comfortable with Federal Reserve rate-hike policy have another threat to contend with, one that a team at Morgan Stanley says has the potential to send stocks to fresh lows.
It’s the unwinding of a decade-old program to flood the economy with cash, known colloquially as quantitative easing, and now, as it’s undone, quantitative tightening. While rate increases get all the blame for this year’s bear market, an analysis by Morgan Stanley’s sales and trading team suggests the balance-sheet procedures have had more sway on equities in 2022, explaining virtually all their twists and turns.