FED Buying vs. Market price action YTD

In this post, I’d like to cover the relationship between the FED’s buying of Treasury Securities and the price of a Total Market ETF.

I chose to use ITOT as my Total Market ETF, as the data was readily available from Yahoo Finance, and it’s my favorite Total Market ETF.

I only used data from 2021. Later on, I’ll increase the data points to expand back to 2020.

Here is a graph I did of ITOT’s adjusted close vs Total Treasury Securities (in billons of dollars) owned by the FED. Adjusted close takes into account things like splits, dividends, etc.

The Linear Regression trendline is showing a Coefficient of Determination of .851. This is saying that there’s a strong relationship possibly existing between Treasury securities on the FED’s balance sheet and the price of ITOT. To the point-this regression model accounts for 85% of the variability in price. So, as shown, most of the data points are hovered around the trend line:

However, let’s take a look at the precursor data.

Here is the monthly buying of Treasury Securities by the FED. Please note that June 2021 has more than June or July of 2020. This indicates the FED has NOT slowed its buying of Treasury Securities, and expanding its balance sheet.

March and April go off-scale, as they are the outliers here (Immediately after the COVID-19 crisis began). The key here is to determine if the FED is slowing their buying and at what rate. Please note these numbers are pulled directly from the Federal Reserves website. Picture of source below.

Here is the DATA I used from the FED Reserve website, as you can see, essentially a line straight up, showing the rate at which its balance sheet is increasing:

This data is released every seven days.

Here is a youtube video I did also showing the trend in the price of TLT. It’s currently up over 6% in the last few months. I personally believe this price action is not only do to the lofty valuations in the stock market, but also the reduced supply from the FED’s buying.

My prediction based on this data is as long as the FED expands its balance sheet with Treasury Securities, yields will trend lower, and most likely, the price of ITOT will continue to grow.


What’s most important here is the RATE at which the FED grows its balance sheet. Last month was over 90 billon dollars worth of Securities. If this slows, then it’s possible we will see a market correction.

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