The ratio of the S&P 500 to the Federal Reserve’s balance sheet doesn’t matter until 2008. Since then, the market has often returned something similar to the reserve growth. The slope of that ratio line is less than 1 percent annualized.
Another way of showing this is the two on the same percentage axis.
SPX broke away twice. One was the Trump surprise, corporate tax cut rally. Nov 2016-Jan 2018. The peak was around 100 percent of reserve growth. Then taper comes and they reattach during the panic of 2020.
SPX returns in October 2022. It has since broken away again.
In the prior cycles, the ratio plunged as stocks tumbled and the Fed pumps to support the market (QE1, QE2, QE3, QE4, does Yellen and BTFP count as QE5?).
The Fed announced it will reduce QT starting in June. I suspect a poll of financial market professionals would show a majority expect the Fed will increase its balance sheet again with a new round of QE or bailouts of some sort.
However, at some point reserves should stop mattering again. Are we there yet? Or tick tock?
