Fed Helicopter Money Status

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April 15th, 2021 Update

Comment:

Fed significantly increases its SOMA balance as we expect from $7.09 tn last week to $7.17 trillion. This helps $TNX to stay low and boost the tech and growth stocks.  In the next week, expect Fed to either (1) reduce the SOMA balance (the market will pull back) or (2) reduce the extent of the increase (the market will consolidate).

The chance of the market pullback based on SOMA data in the next two weeks is 70%.

April 8th, 2021 Update

Comment:

Fed slightly increases its SOMA balance as we expect from $7.08 tn last week to $7.09 trilion. This helps $TNX to stay low and boost the tech and growth stocks like we mentioned last week.  Expect Fed to further increases SOMA balance next week and possibly push $SPY $QQQ higher.

 

However, $SPY $QQQ has been continuously up for ten days. So I would expect more volatility in the next week (consolidation, pull back, and then push up).   However, we cannot rule out that the Fed's extra $120bn per month liquidity injection starting March 18, 2021, will make $SPY $QQQ rally strongly for another week like this week.

April 1st, 2021 Update

Comment:

Fed decreases the SOMA balance at the March month-end as we expected

However, the market still bounces from the dip, most likely due to funding re-balancing. 

In the next two weeks, we should see Fed starts to increase the SOMA balances, keep the TNX lower/pinged, and the market should have a clear bullish direction (if no more major hedge funds have margin calls, of course)

Youtube video:

https://youtu.be/jQI4HeBbhYI

March 25th, 2021 Update

Comment: 

Based on our daily bonds dark pool data, Fed increases the SOMA account balance for the 3rd straight week and bought more bonds.  This explains the $TNX stays below 17 this week, and $SPY sell-off is relatively controlled.

We expect Fed starts to decrease the SOMA account balance in the next two weeks. If that is the case, we could see $SPY starts to pull back down, $VIX spiking, bonds like $TNT $JNK, and high P/E tech like $TSLA $NVDA to sell-off.

The scenario is similar to the end of Oct 2020. When Fed slightly increased Fed SOMA balance, SPY showed some weakness. One week after, the Fed decreases the balance, and $SPY had a huge pullback

$SPY $VIX

left: Feb-March 2021

right: 10/09/20~11/10/20

 

Note:
The Fed System Open Market Account (SOMA) balance data is updated at 4:15 pm EST every Thursday 

(https://www.investopedia.com/terms/s/soma.asp)

 

This is the key metric that shows us how much money Feds "throw" into the market.  Since Sept 2020, we have seen Feds reducing the liquidity injection at the end of every month and starting to inject the liquidity at the beginning of each month. If this seasonality continues, we should see the market continues to push up in the first 2 weeks in each month, sideway consolidation in the third week of each month, and pull back in the last week of each month. 

 

As long as Fed continues to throw decent money into this market, the US stock market should hold. 

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