Why does quantitative easing negatively affect stocks?
Can you isolate the market impact to just the Fed's quantitative easing?  Can you rule out the future economic predictions of low growth and that there are reasons why the Fed has kept rates low and is trying its best to stimulate the economy?  Just something to consider here. The key is to understand what is the greater picture here as well as the question of which stock market index are you looking at that has done so badly.  Some stocks may be down and others may be up so it isn't necessarily bad for all equally. The stock market in general likes monetary easing. With lower interest rates and easy cheap money freely available, companies can borrow at reduced cost thus improving profits. As profits increase share prices generally follow. So as John Benson said Quantitative Easing usually has a positive effect on stocks. The recent negativity in the stock markets was partly due to the possibility of QE ending and interest rates being raised in the future.
"First note that CIBC issued these bonds with a zero coupon, so they do not pay any interest.  They were purchased by the market participants at a small premium, paying an average of 100.054 for a nominal value of 100.  This equates to a negative annual ""redemption"" yield of 0.009% - i.e., if held until maturity, then the holder will witness a negative annual return of 0.009%. You ask ""why does this make sense?"".  Clearly it makes no sense for a private individual to purchase these bonds since they will be better off simply holding cash.  To understand why there is a demand for these bonds we need to look elsewhere. The European bond market is currently suffering a dwindling supply owing to the ECBs bond buying programme (i.e., quantitative easing).  The ECB is purchasing EUR 80 billion per month of Eurozone sovereign debt.  This means that the quantity of high grade bonds available for purchase is shrinking fast. Against this backdrop we have all of those European institutions and financial corporations who are legally obliged to purchase bonds to be held as assets against their obligations.  These are mostly national and private pension funds as well as insurance companies and fund managers.   In this sort of environment, the price of high quality bonds is quickly bid up to the point where we see negative yields. In this environment companies like CIBC can borrow by issuing bonds with a zero coupon and the market is willing to pay a small premium over their nominal value. TL/DR The situation is further complicated by the subdued inflation outlook for the Eurozone, with a very real possibility of deflation.  Should a prolonged period of deflation materialise, then negative redemption yield bonds may provide a positive real return." I don't think that's the case.   I mean, of course some of the new money supply is making it into the stock market, but I think it's because of the factors I listed. The money supply isn't growing faster now than it has in the past.   Here is M2 since 1980 on a log scale (because a percent change is more relevant than a change in raw dollars, just like stock market returns).  https://fred.stlouisfed.org/graph/?g=fxeb  (I am using M2 because it's a more complete measure of liquidity)  Here is the percent change over time in M2, just to show that the QE isn't really doing anything out of the ordinary.  https://fred.stlouisfed.org/graph/?g=fxek  Here you can see the inflation rate:   https://fred.stlouisfed.org/graph/?g=fxes  What quantitative easing has done is drive bond prices lower, which I already mentioned. It can also be argued that QE has expanded wealth inequality, but I already mentioned that as well. https://www.forbes.com/sites/jonhartley/2015/06/25/how-federal-reserve-quantitative-easing-expanded-wealth-inequality/#1f7528a321eb &gt;The other piece of course is that this person consistently gets raises that meet or beat inflation.   That's exactly the idea I am disputing. It's the reason the deficit is such a huge problem.  Having a budget deficit at 2,3% of GDP would make sense, if you're expecting your economy to continue growing at a high rate. That's the Keynesian argument, the idea that your debt can keep growing, because your total economic productivity is going to continue growing every year.  However, it's not something that I expect to see happening. Why is that?   If we look at US annual GDP growth, [we find that the trend is downwards.](http://ablog.typepad.com/keytrendsinglobalisation/2011/02/us-4th-quarter-2010-gdp.html) In the sixties, annual GDP growth was at 4.5 percent. In the 21st century, annual GDP growth is stuck at around 1.5 percent on a yearly basis. This is a global issue.  Part of the issue is that population growth rates are going down. US fertility rate is stuck at a record low 1.86 per woman.   More importantly however, is that the typical American has seen no increase in his household income in over more than a decade. [For the typical American, the peak was in 1999, the economy has gone downhill since then.](http://blogs.lclark.edu/hart-landsberg/2011/09/05/one-nation-divisible/) If the typical American sees his income decline, it's a very bad idea to increase government spending at the same time.  Why this large divide between the elite 1% whose income is growing, and the rest of the public? Part of the issue is that the typical American spends a far larger portion of his income on resources that are limited. Energy, food, these are products that have grown very expensive and are eating up a larger chunk of a typical American's budget.  The high wealth and income of the 1% is effectively an unsustainable illusion created by quantitative easing and other bubble-blowing policies. These people own stock, that have surged up despite a weak economy. They own expensive houses, the prices of which can be artificially pushed into the stratosphere.  This wealth of our elite is all hypothetical wealth, that evaporates when you try to tax it. If you look at US GDP to base your budget policies on, the impression of sustained economic growth is deceiving you. You end up spending far more than you will ever manage to pay back. Visually, it's nice. But the problem is actual usage. Apple maps does not work. As someone who has tried using it many times, it simply does not work. It can't find addresses that Google Maps finds with ease. That is what a map program needs to do. And it doesn't.  It also is completely wrong for the typical New Yorker, which is what I am. It doesn't have public transportation built in. When zoomed out, it shows me gas stations, like I fucking need them. It also shows icons for chain restaurants that I could give a shit about... why does Burger King need a big ol' icon taking up 2 blocks? Who thought of this feature and didn't give me the option to turn it off or even configure it?  Sorry... it is not a very well done app. There are various indexes on the stock market that track the currencies.  Though it is different than Forex (probably less leverage), you may be able to get the effects you're looking for.  I don't have a lot of knowledge in this area, but looked some into FXE, to trade the Euro debt crisis.  Here's an article on Forex, putting FXE down (obviously a biased view, but perhaps will give you a starting point for comparison, should you want to trade something specific, like the current euro/dollar situation). "Isn't this effectively saying that the market responds principally to itself, and not to either economic fundamentals, or the profitability of the underlying companies.  If so, the market as a ""price discovery mechanism"" is broken, and investors would be wise to do their own research." I agree that the cause of the crash can make a huge difference in the effect on the bond market. Here's a few other possibilities: All that to say that there's no definitive answer as to how the bond market will respond to an equity crash.  Bonds are much more highly correlated to equities lately, but that could be due to much lower interest rates pushing more of the risk of bonds to the credit worthiness of the issuer, increasing correlation. This.  If the dollar wasn't the reserve currency we'd probably be in inflation hell, but it's undeniable that QE had a positive (and yes, somewhat superficial) impact. As another commenter in this thread alluded it's poor policy to continually kick the can down the road via another government put, but it's worse policy to let an entire class get economically crippled worse than what happened.