The New Scariest Chart In The World (For US Stock Investors)

The Federal Reserve may find it difficult to minimize market volatility when it begins to slow the reinvestment of its balance sheet given the uneven maturities of its holdings.

Given the unprecedented correlation between central bank balance sheet size (and flows) and the US equity market...

The uncertainty of the unwind (and unevenness of maturities) makes the following chart the scariest for investors in a world where every event risk dip is an opportunity to buy...

As Bloomerg reports, analysts expect the Fed will have to decide whether to roll over a certain percentage of its principal or announce a fixed dollar target of its Treasury and mortgage securities to unwind the $4.26 trillion of debt in a “passive and predictable manner.” Under the percentage option, the scale of the Fed’s balance-sheet reduction “will fluctuate significantly” from month-to-month and quarter-to-quarter, “which is just an accident of history,” Wrightson ICAP Chief Economist Lou Crandall said in an April 3 note.