End of the Fed’s QT: What Impact on the S&P 500?The U.S. Federal Reserve (Fed) is expected to end its quantitative tightening (QT) program on December 1, 2025. This step marks the halt of the reduction of its balance sheet, after several years devoted to withdrawing liquidity from the financial system to fight post-COVID inflation. Historically, the end of a QT cycle has often coincided with an improvement in the S&P 500’s trend. However, while this development is generally a positive signal, it deserves a nuanced analysis in a context where the index is already trading at historically high valuation levels.
1) A look at history: a frequently favorable turning point
In previous episodes, notably in 2012 and 2019, the end of QT coincided with a stabilization, then a gradual acceleration of equity markets. The economic logic is intuitive: when the Fed stops reducing liquidity, pressure on financial conditions eases. Investors then anticipate a more predictable monetary environment, sometimes heralding a loosening cycle. This improvement in sentiment has often supported U.S. indices in the following months.
This is not a mechanical link, but an observed trend: the end of QT acts as a relief, removing a monetary tightening factor that weighed on valuation multiples.
2) Why remain cautious despite this signal?
The current context differs in several ways. First, by the end of 2025, the S&P 500 is showing valuation levels close to its records, driven by a handful of large technology stocks. This concentration means that part of the potential future upside is already priced in. Second, even if the Fed ends QT, this does not guarantee a rapid rate cut or a swift return to a highly accommodative monetary policy. The central bank may prefer to maintain a restrictive stance as long as inflation does not durably converge toward its target.
Finally, investors will have to deal with persistent uncertainties: slowing global growth, pressured margins in certain sectors, and geopolitical tensions that may create volatility.
3) Why keep an optimistic bias?
Despite these precautions, several factors justify measured optimism. Ending QT removes a significant headwind for equities. If inflation continues to normalize, the Fed will have greater flexibility, which could improve economic prospects and support corporate profits. In short, the end of QT is not a guarantee, but it represents a positive catalyst in a context where the risk of excessive market valuation is present.
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