Stocks could fall 15% to 20% as ‘QE fluff’ comes out of the market

Stock Market Decline - Photo by Nodulation

Stock investors, brace yourselves for a nasty correction.

The S&P 500 SPX could fall 15% to 20% this year as the Federal Reserve stops buying bonds, according to Peter Boockvar, chief market analyst at The Lindsey Group.

The chart above shows how the S&P 500 reacted in the periods after the Federal Reserve stopped its first two quantitative easing programs. After the Fed stopped buying bonds in March 2010, the S&P 500 dropped 16% from its highest point on April 23, 2010 to its lowest point on July 2, 2010. The second program drew to a close at the end of June 2011 and was followed by a 19% decline between July 7 and October 3 of that year.

The Fed currently buys $45 billion in Treasury and mortgage debt each month. The central bank has cut the size of its bond-buying program by $10 billion at the last four meetings as it moves to normalize monetary policy after a period of unprecedented stimulus.

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