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That QE-sy feeling

Friday, October 17, 2014 - 00:25
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Here's the bright side of the current stock market downturn: It's been worse before.

A look at the historical price chart for the Straits Times Index (STI) shows clearly that the current downturn, which kind of began in August, is not the first time in recent years that the market benchmark has gone through a prolonged decline.

I was curious about just when exactly the STI has suffered a worse slide. Assuming that the current doldrums began on Aug 1, I looked through historical prices to see when the STI has had a sharper percentage fall over a similar 55-trading-day period. It turns out the most recent ones were on Feb 4 and 5, 2014; Sept 4, 2013; and June 24, 2013.

What do those dates have in common? They were often preceded by a period of selling in anticipation of the end of quantitative easing (QE).

February marked two months of gradual retreat after the US Federal Reserve finally confirmed, in December, that it would begin to taper QE, its bond-buying programme aimed at keeping long-term interest rates low.

The September 2013 date was close to the end of speculation that tapering would begin that month, a market guess that proved to be wrong when the Fed said mid-month that it would not begin tapering yet.

June 2013 came after former Fed chairman Ben Bernanke first mentioned tapering, which sparked the first instances of tapering-related selling.

Right now? The current round of QE could end this month or next, depending on the Fed's decision after its next meeting, on Oct 29 Eastern time.