How to manage a portfolio #Fed Rate (Credit Market) vs S&P500 (Equity Market)

Correlation between Fed Rate (US01M — US Govt 1 month Bond Yield)and S&P500

7 min readMar 21, 2022

Table of Contents

Correlation Discovery

Fed Rate vs S&P500 Tweet

Mark Minervini (@markminervini) tweeted at 5:39 AM (GMT + 3) on Fri, Mar 18, 2022:
“With the yield curve close to inverting and high inflation being met with potentially the most aggressive Fed we have seen in years, many are wondering… can the market rally? Historically, it takes a number of rate hikes to cause a recession and materially affect the stock market. https://t.co/6OtIYmWFSU”

Federal Funds Rate vs S&P: Macro Correlation isn’t immediate

Based on research done for the above data I made the following discovery:

The Fed rate is considered as United States 1 month Government Bonds Yield which you can view in TradingView.com.

#Discovery > Between 0 & 1 Fed Rate : +10bp Fed Rate= +1.7% S&P growth

• e.g. 2017 Fed rate @ ~0, +239bp / 10bp = 23.9 * 1.7 = 40.63% (Actual growth 43%)

#Discovery > Between 1 & 4 Fed Rate : +10bp Fed Rate= +1% S&P growth

• e.g. 2005 Fed rate @ ~1, +455bp / 10bp = 45.5 * 1% = 45.5% (Actual growth 46%) ;
• e.g. 1993 Fed rate @ ~3, +522bp / 10bp = 52.2* 1%= 52.2% (Actual growth 58%)

#Discovery > Above 4 Fed Rate : +10bp = +0.58% S&P growth

• e.g. 1985 Fed rate @ ~6, +514bp / 10bp = 51.4 * 0.58% = 29.81% (Actual growth 30%)

Using the above concept, at the time of this writing is 18th March 2022. Lets use 4,277$ as S&P500 approximate being average of Weekly High @ 4,416$ and Weekly Low @ 4,138$. The Federal rate @ 0.206% being average of Weekly High @ 0.274% and Weekly Low @ 0.138%. The Federal Reserve Bank increased the rate by 25BP on 16th March 2022 as shown below.

> Fed rate is Between 0 & 1 : +10bp Fed Rate= +1.7% S&P growth.

Percentage Increase = (25 / 10) * 1.7% = 4.25%
Price Increase = 4,277$ * 1.0425% = 4,458.77$

> Let’s analyze the drawdown to determine the target price. The drawdown gives us a 1.3 bounce back increment from lows.

Expected Growth rate : ((5,350$ — 4,107$)/4,107$) *100 = 30.26%
Expected Rate Hike : 30.26% / 1.7% =17.8 * 10 =178BP
178 / 25 = 7 rate hikes of 25BP.

> Projection based on Elliot Wave

Expected Growth rate : ((5,600$ — 4,277$)/4,277$) *100 = 30.93%
Expected Rate Hike : 30.93% / 1.7% =18.19 * 10 = 181.9BP
181.9 / 25 = 7 rate hikes of 25BP.

NB*

• 1/1.7 = 0.58 (Inverted). Such that above 4% the S7P Correlation growth rate inverts and diminishes by nearly a half whereas below 1 it grows at nearly double the rate. This means the growth rate is mean reversing.

• Market corrects when growth is achieved

•. Difference in years +8,+12,+12,+4,

BP means Basis Points and is defined as one-hundredth of one percentage point (used chiefly in expressing differences of interest rates) and is calculated as follows in absolute value, (New Rate — Old Rate) * 100. In percentage, you simply divide by 100 to get percentage points.

S&P500 vs Bitcoin Tweets

Kevin Svenson (@KevinSvenson_) tweeted at 2:04 AM on Wed, Mar 02, 2022:
#Bitcoin vs S&P500 — Since the Beginning of Time
I think its important to understand the relationship that #BTC shares with traditional markets
Another reason why I have taken a more neutral stance on the market recently is that equities have entered another “volatile market” https://t.co/j8VRMoGGK4

PlanB (@100trillionUSD) tweeted at 1:31 PM on Tue, Mar 08, 2022:
#Bitcoin and S&P500 https://t.co/ESDbQBsLv6

Crypto Rover (@rovercrc) tweeted at 10:19 AM on Wed, Mar 16, 2022:
This is why I am bullish on #Bitcoin for the coming weeks.
The S&P500 & #Bitcoin usually move together, and like you can see on the chart below, the #SP500 is creating a beautiful reversal structure.
Falling wedge + RSI symmetrical triangle. I am bullish! https://t.co/gthflEoM5k

TechDev (@TechDev_52) tweeted at 2:02 AM on Tue, Sep 21, 2021:
Stock Market — S&P 500 ( $SPX ). 2017 top coincided with #Bitcoin’s.
Feels all too familiar. https://t.co/XJGwQCXCTE

Daan Crypto Trades (@DaanCrypto) tweeted at 0:12 PM on Tue, Sep 28, 2021:
Where $BTC and $SPX are usually not very synced on low timeframes, we can see how that changed when we dumped on the 7th of September.
Ever since, even on the 1H we’re seeing a high correlation efficient. Especially compared to before, where it was quite random. https://t.co/UTpdCtjXjq

Daan Crypto Trades (@DaanCrypto) tweeted at 3:53 PM on Mon, Jan 10, 2022:
$BTC Following $SPX almost perfectly. At this point we’re not trading crypto but we’re trading stocks. Macro factors are at play here and more important than anything else at the moment. https://t.co/dWi9FVUJtF

Mozzi (@Mozzi_analyst) tweeted at 9:42 PM on Tue, Jan 25, 2022:
#SP500 monthly vs #BTC weekly. https://t.co/MqxtciZZR2

Nunya Bizniz (@Pladizow) tweeted at 6:39 PM on Mon, Feb 07, 2022:
What do you think? https://t.co/V92xTMVd6H

Emmy Æther (@EmmyMoonie) tweeted at 2:50 AM on Fri, Mar 18, 2022:
Look at the similarity between S&P500 #stocks and #bitcoin daily price action!
Both had 2nd HIGHER Top then straight into a downtrend/correction/capitulation. Stocks then rallied to ATHs and never looked back! #Btc seems ready for ATHs or the FINAL capitulation before ATHs. https://t.co/YVoQhTyQE1

John Wick (@ZeroHedge_) tweeted at 5:52 PM on Mon, Jan 31, 2022:
$VIX #SPX #BTC What I ‘m currently watching is a double top on the VIX. If this plays out then both stocks & #Bitcoin could find some relief & potentially rally. Aside from double top Volatility is also mean reverting (Alpha) https://t.co/axryplJEQ3

David Marlin (@Marlin_Capital) tweeted at 6:32 PM on Thu, Jan 27, 2022:
2018 is our baseline year for the combo of QT and 4+ rate hikes together.
$SPY finished the yr -6%, with 1 correction of 12% and 1 correction of 20%.
In all, $SPY had 3 official corrections before QT ended. If history is any indication, a QT cycle brings more volatility. https://t.co/E3GKDmeR9n

S&P500 vs Inflation Tweets

Preston Pysh (@PrestonPysh) tweeted at 4:43 PM on Wed, Nov 03, 2021:
Global Central Bank Balance Sheet Growth Compared to the S&P 500 https://t.co/Yeq0JesXSD
Anil (@anilsaidso) tweeted at 7:17 AM on Wed, Jan 05, 2022:
“if you’re both in cars traveling 70 mph side-by-side, then it’ll appear as though neither of you are moving.” @PrestonPysh https://t.co/NrCApwiJSo

Jurrien Timmer (@TimmerFidelity) tweeted at 0:47 AM on Wed, Nov 24, 2021:
The dollar and spreads are two components of the index (the others being short rates, long rates, and the stock market). /4 https://t.co/hQdiAdzNg3

Matthew Hyland (@MatthewHyland_) tweeted at 1:07 AM on Wed, Jan 05, 2022:
#Bitcoin saw its largest run of this bull run from $4k to $60k under the following environment:
•US Dollar moving down
•US Stock Market moving up
•US 10 Year Yield Moving up
Since last February, the US Dollar has been moving up while Bitcoin has been overall sideways https://t.co/SgQv6rmSuT

(@DocumentingBTC) tweeted at 3:42 PM on Sat, Jan 08, 2022:
The problem is inflation. The solution is #bitcoin https://t.co/GmJSGOPJQO

S&P Elliot Waves

Gert van Lagen (@GertvanLagen) tweeted at 2:39 PM on Mon, Jan 24, 2022:
#SP500 [1M] — The financial markets will likely not collapse just yet:
+ Top to be expected at the yellow signal line -> previous touches in 1929 and 2000 after which a recession followed;
+ Two Elliottwave counts included that both point to a steep correction in the near future. https://t.co/y74UEn6moq

Gert van Lagen (@GertvanLagen) tweeted at 3:54 PM on Tue, Sep 07, 2021:
Are we at the dawn of a great worldwide recession?
Have a look at this Elliottwave analysis on the S&P500 and draw your own conclusions. https://t.co/VEN2YcF9OR