The stock market hasn't gotten over its addiction to QE
It turns out the stock market hasn't gotten over its addiction to quantitative easing.
In a note to clients on Thursday, Morgan Stanley's Adam Parker sent around an updated version of his chart showing stock market declines since the financial crisis.
Earlier this year, it looked like the stock market was getting over its addiction to QE, illustrated by the fact that the first stock market sell-off in a post-QE era saw a quick rebound.
But with the recent 12% drawdown in the S&P 500, it looks like the market hasn't gotten used to going it alone. Or said another way, the market hasn't gotten used to not having what Parker called in June, "the stabilizing presence of QE."
The latest decline, as Parker writes, isn't about risks to individual companies, but rather the way that concerns like the rising US dollar, the declining price of oil, and other worries about the global economy is weighing on stocks:
Equity market volatility rose sharply in August, with the S&P 500 declining by over 6%, and has remained high into September. The current equity market drawdown is the longest and most severe since 2012, prior to the start of QE3/4 by the Fed. Individual equities are becoming more macro, as well, with the typical Top 500 stock now having most of its risk explained by our 6-factor risk model, up from just 40% a year ago, and at its high since 2012.
But no matter the reason, its a new era for the stock market.
