For anyone who still thinks that something other than the U.S. Federal Reserve’s experiment with Quantitative Easing is helping to lift U.S. stocks, the chart above should quickly dispel that.

Since the introduction of QE1 back in later 2008, the growth of the Fed’s balance sheet as a result of QE almost perfectly overlays a chart of the S&P 500.

And, we know that earnings are not driving stocks. U.S. non-financial company earnings have been almost flat for the last two years now. (The largest financial companies have received massive government subsidies, which explains most of their earnings)

Now that U.S. stocks are breaking their recent trend, it will be interesting to see the extent of this correction. If there is enough of a selloff, the graph above will start to exhibit a deviation between the amount of QE and stock prices. That might be an indictment of the lack of effectiveness of QE in putting the U.S. economy back on a long-term growth trajectory and in fixing U.S. unemployment. If the market does lose faith in QE, what will be the Fed’s Plan B?

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