The latest data on the Fed’s balance sheet was released on Thursday afternoon. And the balance sheet expanded appreciably as was widely expected heading into the week.
Overall, the Fed’s balance sheet increased by $57 billion to $2.919 trillion for the week ended December 12. This marks a continuation of the oscillating upward trend in the Fed’s balance sheet since the launch of QE3 back in mid September.
As was expected, the primary driver of the increase in the Fed’s balance sheet was the settlement of a major tranche of mortgage-backed securities (MBS) purchases scheduled for December 12. This alone led to a net $45 billion increase in the Fed’s balance sheet over the past week.
The increase in the Fed’s balance sheet is likely to continue over the next two week, albeit at a more measured pace, as a round of 15-Year Fannie Mae and Freddie Mac MBS purchases are set for settlement on Tuesday and a block of 30-Yeaer Ginnie Mae bonds are slated for next Thursday.
Whether these latest liquidity injections translate into stock market gains remains to be seen. But even though the initial response has certainly been lackluster, it is worth noting that recently favorable technical support readings remain fully in tact despite today’s pullback. For example, stocks as measured by the S&P 500 Index (SPY) are holding newly established support at the 50-day moving average. Moreover, stocks remain in bullish territory according to its Relative Strength Index and momentum continues to move in a positive direction. Thus, stocks may still show the power to move higher in the coming days despite Thursday’s disappointing price performance.
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