2014-06-Chart-of-Month

Overlaid on the S&P 500 is the Federal Reserve’s balance sheet size (scale on the right), which reflects the massive purchases of Treasuries and Mortgage Backed Securities through their quantitative easing programs.

The high correlation between the trend of the Fed’s balance sheet and the S&P 500 is obvious. Liquidity has been the mother’s milk of this bull cycle. When the rate of growth of their balance sheet has fallen to zero, market corrections have occurred. Consider the following:

  • One month following the termination of QE1 in April 2010, the equity markets experienced the “Flash Crash.”
  • The month following the end of QE2 in June 2011, we experienced the sharp 20% correction in July 2011.

Ostensibly, the Feds “tapering” program is meant to avoid these sudden market disruptions. In their June policy meeting, the end of this QE program was set for October 2014. Until then, the Fed’s balance sheet continues to grow and we anticipate that the markets will continue to advance.

Past performance is not indicative of future results. The opinions expressed are those of the Clark Capital Management Group Investment Team. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, other investments or to adopt any investment strategy or strategies. This material is not intended to be relied upon as a forecast or research. Clark Capital Management Group, Inc. reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. The information provided in this report should not be considered a recommendation to purchase or sell any particular security, sector or industry. It should not be assumed that any of the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. Clark Capital Management Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Clark Capital’s advisory services can be found in its Form ADV which is available upon request.

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