Source: Bloomberg
Along with interest rate adjustments, other tools come into play. For example, the US Fed’s quantitative easing decreased 10 year bond yields to below 2% — a historic low – from above 4%.
It’s logical to ask how one can quantify how effective the stimulus has (or hasn’t) been. One straightforward method is to look at how consumer discretionary equities have performed. If one purpose of monetary stimulus is to encourage consumer spending, the discretionary sector should directly benefit from central bank easing. In other words, easier and cheaper access to credit allows households to spend more on non-essential items, resulting in a performance boost to the consumer discretionary sector relative to the rest of the stock market.
The chart below tracks the effects of stimulus on consumer discretionary stocks. It suggests that regions with the most sustained stimulus efforts (e.g. the US and the UK) had the best relative results, while those which manipulated interest rate policy more frequently (e.g. Canada and Australia) fell considerably short (click image to enlarge):
Source: MSCI