After QE3’s announcement in mid September there was some concern that the effect of QE on the market had eroded because the S&P 500 proceeded to sell off by 5%. It could be true that QE is losing its efficacy, but it’s worth noting that true balance sheet expansion didn’t really start until mid November because of the mechanics of MBS purchases. It therefore may or may not be coincidental that MBS started to show up on the Fed’s balance sheet around the same time that the S&P 500 found a bottom.
Below is a chart of how the S&P 500 has done during periods of QE, but instead of using the announcement dates, the chart highlights the times that the Fed’s holdings of Treasuries and MBS were increasing (note that this analysis therefore excludes operation twist). Since the S&P 500 is now hitting new cycle highs, perhaps one could argue that QE hasn’t exactly lost its potency.