Dave Wilson. S&P 500 has a correlation to assets owned by the U.S. government.

Dave Wilson of Bloomberg News creates a chart of the day which can be e-mailed to you each day.  If you would like to be added to the mailing list you can send a request to dwilson@bloomberg.net

Below is a column that he wrote on March 4, 2011 regarding the correlation between the increase in the amount of assets owned by the Federal government and the rise in the S&P 500. 


S&P 500’s Link to Fed Assets Seen as Warning Sign: Chart of Day
2011-03-04 15:58:50.543 GMT


By David Wilson
    March 4 (Bloomberg) -- U.S. stocks are tracking a surge in
the Federal Reserve’s assets too closely for comfort, according
to Albert Edwards, a global strategist at Societe Generale.
    The CHART OF THE DAY compares the Standard & Poor’s 500
Index with the total assets held by the Fed since stocks began
their current bull market about two years ago. Edwards included
a similar chart today in a report.
    Yesterday’s close for the S&P 500 was 97 percent above its
low on March 9, 2009. The central bank’s holdings of Treasury
securities, mortgage-related debt and other investments rose
during the period by 34 percent to a record $2.55 trillion.
    Two rounds of bond purchases, known as quantitative easing,
were largely responsible for the jump in Fed assets. The buying
also pushed stocks higher, contributing to an economic recovery,
Edwards wrote.
    “We will see whether this patient can keep up its frenetic
Irish jig in the absence of extreme stimulants,” he wrote. The
second round of quantitative easing, totaling $600 billion, is
due to end in June.
    Bill Gross, Pacific Investment Management Co.’s co-chief
investment officer, wrote this week that share prices and bond
yields “are resting on an artificial foundation” built by the
Fed’s debt purchases. An end to the easing is likely to hurt
stocks and lift yields, he wrote in a monthly commentary.