Another way to look at the accumulation of assets by the Fed is to measure them over a three month period. In the chart below, we show the trailing three month rate of accumulation (solid line) and then the taper projections (dashed line).
The bond market has been mostly following the taper script as well. Below we show the 3-month taper model alongside the 10 year US Treasury bond. The move from 3% to 2.63% seems perfectly consistent with the taper.
Stocks are somewhat the odd man out with respect to the taper. So far, the Fed has decelerated its three month accumulation of assets by one-third (from $300 billion to $200 billion). While stocks have flat-lined since the beginning of the year, it is unclear whether the gravitational pull of the taper is having much effect.
Though, underneath the surface, stocks seems to be reacting to the taper in a somewhat predictable change in a leadership rotation from cyclicals to counter-cyclicals. Note the blue is inverted, so when it is falling it represents MSCI World counter-cyclicals outperforming cyclicals. Counter-cyclicals are outperforming cycliclas by around 4% YTD.
