Some experts believe that the ongoing bull market—which just recently passed the seven year mark—is mostly due to the Federal Reserve’s monetary policy at this point. According to some estimates, as much as 93 percent of the market’s actions over the last few years is due to the Fed’s intervention. It’s hard to place an exact number on this, and 93 percent is a pretty precise appraisal. The number stemmed from charts going back to World War II, and market activity, the Fed’s actions, and a number of other considerations were looked at. Then, correlation and regressive analysis were used to determine just how much of an impact the current bull market is actually affected by the Fed, and how much by other factors.
If you’re looking for numerical proof of the Fed’s interventions in the marketplace, their balance sheet when it comes to bond money poured into the economy has grown from $2.1 trillion to $4.5 trillion. This happened over the course of several years through a process known as quantitative easing (QE). In essence this was the roughly eight year period where interest rates were down near zero. Now that rates have gone back up and the QE is over, a new transitory period has been entered with interest rates being the dominant force. That 93 percent influence that the Fed has had on the prevalent bull market is about to enter a new phase.
If these analysts are correct, then the bull market may be about to come to an end. The only way to truly determine this will be hindsight, but it is an important thing to pay attention to. For traders, this concept shows something very important. It shows us that we need to be very aware of what the Fed is doing, and then how that impacts the specific trades that we make on a daily basis. Regardless of whether you are trading binary options, stocks, or something else, the Fed’s actions will have an influence on your trading. Knowing what that impact will be is a must if you want to be successful.
So what is the correct course of action? The general consensus right now seems to be that U.S. stocks are volatile. This means that U.S. indices will also be volatile. Some traders thrive on volatility, others do not. If you are one of those traders, then analyzing the technical indicators behind stocks and indices right now will be beneficial to you as you decide which trades to make. When it comes to volatility, short term trades are best so that you can enter and exit a position before it becomes too unpredictable or begins to work against you.
Long term investors and position traders shouldn’t worry at this point, even if the Fed’s influence really is as strong as this study indicates. What is causing the bull market doesn’t actually matter as long as we are aware of it. If we are aware of it, then we can detect changes to market conditions before they occur. Even if you would never dream of taking out a 60 second binary option, or buying a stock and then selling it just a week later, there are plenty of reasons to see opportunity because of the way that the Fed is acting. One of the nice benefits of trading is that we can go long or short with our positions, and by looking at the factors that affect markets—whether it be the Fed or something else—we can move accordingly with profitable positions regardless of what actually ends up happening.