×

What level on the S&P is the 'Yellen put'?

Federal Reserve Board Chairwoman Janet Yellen testifies before a House Financial Services committee hearing July 15, 2015.
Yuri Gripas | Reuters
Federal Reserve Board Chairwoman Janet Yellen testifies before a House Financial Services committee hearing July 15, 2015.

The ferocity of the equity selloff in recent weeks has caused analysts to question whether there is a level the S&P 500 would need to reach before the U.S. Federal Reserve recommences its bond-buying program.

"Given what's going on, where's the Fed put?," Bob Janjuah, a senior independent client adviser at Nomura, told CNBC Tuesday.

"What level of asset price deflation, as proxied by the S&P, would the Fed say 'I'm going to ignore that, and I'm going to let that happen, because it's probably a good thing for it to happen in the long run'?"

The S&P 500 lost 2.96 percent on Tuesday, the third worst day of the year for the index on a percentage basis, and closed at 1,913.85 points.

Janjuah, known for his often bearish views, believes that the figure would be around 1,570 points on the U.S. benchmark which would trigger a move by the Fed. This would be close to the peaks reached in both 2001 and 2007.

Janjuah has touted the idea this year that the Fed will have to implement more quantitative easing despite the central bank currently looking to tighten policy towards the end of 2015. Larry Summers, a former U.S Treasury Secretary, has also voiced similar opinions as markets tanked aggressively at the start of last week.

This sort of policy is likened to a "put option" which gives investors the option to sell an underlying asset if its reaches a certain price. The term was famously used for Mario Draghi's bond-buying plans in the euro zone with market watchers commenting that the ECB President was effectively putting a floor under the price of sovereign bonds in the region.

Central banks have been purchasing fixed-income assets in secondary bond markets since the global financial crisis of 2008. The aim is to boost liquidity in the banking sector and thus encourage banks to lend to the wider economy. As well as in the U.S. and euro zone, programs have also been launched in Japan and the U.K. The Fed completed its third program late last year and has been edging towards hiking its benchmark interest rate in the interim.

Peter Oppenheimer, the chief global equities strategist at Goldman Sachs, currently has a "neutral" stance on U.S. stocks but is cool on the idea that the S&P 500 would see any further plunge that could make the Fed change course.

He did, however, concede that the S&P 500 would be "one of the factors" that the Fed would look at if there was a significant drawdown, but added that it was not "principally their focus."

Quentin Baker, a fixed income derivatives trader at Mako Financial Markets, meanwhile, has predicted a 50 percent fall for the Shanghai Composite over the next six to nine months. He believes that any central bank influence would be able to change sentiment but not necessarily the direction of global stock markets.

"If you said to me, do you think the central bank is going to change the whole psyche of this market and we're not going to see that kind of move, I would actually argue and say 'no, I don't think so'. I think it's more likely that we are going to see an unwind of that market," he told, CNBC Wednesday.

He believes, looking at the Chinese market in particular, that an index will rise and fall despite any outside intervention.

"The market will win, the market will go where it wants to go," he added.