Policy cycles × sector rotation

QE1 ended in March 2010 with rates pinned at zero. The moment purchases stopped, the market delivered the flash crash and a 16% drawdown into summer: the first ladder-removal test. Bernanke hinted at more easing at Jackson Hole in August and the tape repaired.

Sector structure was classic early recovery: discretionary +21% and industrials +18% led (restocking plus a consumer rebound), QQQ (+16%) ran well ahead of the S&P (+9%); financials made just +2% under a bad-debt overhang and health care +3% under reform uncertainty.

On Nov 3, 2010 the Fed announced $600B of Treasury purchases. The liquidity did not flow to growth stocks: the dollar weakened, oil ran to $110, and inflation expectations jumped.

Energy led by a wide margin at +27%, with industrials +16% and health care +15% behind; QQQ (+9%) lagged the S&P (+12%) for the whole era. Same medicine, different soil: QE2 landed in a year of closing output gaps and booming emerging markets, so it became a hard-asset bull.

August 2011 brought the US downgrade and a full euro-debt flare-up; the Fed answered with Operation Twist (sell short, buy long) to press the long end, and extended the zero-rate pledge. Duration repriced.

Technology +23% (the iPhone-supercycle Apple era) paired with staples +17% and utilities +13% in a quality-growth plus defensives barbell; financials +4% were hostage to European banks and materials −4% reflected China slowing. QQQ's +21% vs the S&P's +12% was almost entirely the duration re-rating.

QE3 was the only open-ended round: monthly buying with no fixed total. The May 2013 taper tantrum hit, but the rally resumed because the economy was genuinely improving.

The S&P returned +44% for the era; health care +73% led (a biotech innovation cycle plus post-reform certainty), financials +55% (housing recovery, steeper curve), industrials +54%; energy trailed at +21% as shale supply capped oil. A textbook case of fundamentals catching the liquidity: leadership went to sectors with their own cycle, not to mere liquidity beneficiaries.

Purchases hit zero in Oct 2014 and hike expectations built. The dollar index rose 25% in a year and oil fell from $100 to $35. Not a single hike had happened, yet the commodity chain was already executed by the dollar: energy −26%, materials −6%, industrials −1%.

On the other side, cheap oil was a consumer tax cut: discretionary +19% led and QQQ's +14% ran far ahead of the S&P's +6%. The Aug 2015 yuan devaluation added a global volatility shock mid-era. The era's driver was not the Fed's hand but its mouth: forward guidance alone did the tightening.

After the Dec 2015 liftoff the Fed managed only one more hike in 2016: but global manufacturing synchronized into recovery in late 2016 and the post-election Trump trade lit reflation expectations.

Technology led at +41%, with industrials +40%, financials +38% (about 10 points over the S&P's +28%, on margin repair and deregulation hopes) and materials +36% broadly strong. The era falsified hikes = sell stocks: when hikes happen because growth accelerates, growth, cyclicals and financials win together.

Runoff started Oct 2017, four more hikes landed in 2018; Powell called rates far from neutral in October, then called QT on autopilot at the Dec 19 press conference, and three sessions later the S&P completed a near-20% drawdown into the Christmas Eve low.

Only defense survived the era: discretionary +4% (Amazon alone), utilities +2%, health care +1%; industrials −13% and materials −15% (trade war), financials −12% (flattening curve), energy −18%. Markets can absorb hikes; hikes plus runoff drain liquidity twice over: QT's first lesson.

A single word, patient, completed the pivot on Jan 4, 2019. Three insurance cuts followed (Jul/Sep/Oct), QT ended Aug 1 (announced Jul 31, two months early), and bill purchases began in October to repair the repo market. Liquidity flipped from drain to pump.

A falling discount rate lifted both ends of the duration spectrum: technology +81% led while bond-proxies like utilities +40% and real estate +43% also surged: the cuts-era signature of growth and defensives rising together. Energy +9% finished last; shale oversupply kept it out of the party.

Two emergency cuts to zero plus unlimited QE on Mar 23, 2020, compounded by fiscal transfers: the most violent policy combination on record. Act one (2020) was the stay-home growth mania; act two (2021) was inflation waking up and commodities taking the baton.

Measured from the pre-crash high (Feb 20, 2020) to the eve of liftoff (Mar 15, 2022): energy +46% edged technology +45% at the top, with materials +42% third; utilities +8% and communications +14% trailed. One window holding two leaderships shows unlimited liquidity does not pick sectors: it lifts the longest duration first, then hands the baton to hard assets once inflation shows up.

From Mar 2022 the Fed hiked at the fastest pace in four decades (four 75bp moves) and added QT2 runoff in June. Under the supply shock, energy led at +27%; real estate −11% finished last: rates transmit to cap rates most directly; financials −2% absorbed SVB's failure in Mar 2023.

Note the window starts Mar 15, 2022: after the first leg down: and contains H1 2023's AI rally, so technology shows +22% for the era. A reminder that window boundaries shape the print: tech's calendar-2022 drawdown was far uglier than this number.

After reaching 5.25-5.5% in Jul 2023 the Fed held for 14 months. Textbooks say high rates compress valuations; reality was an AI capex supercycle whose earnings upgrades outran the discount rate: communications +33% (META/GOOGL), financials +30% (soft landing plus margins), technology +25%.

Energy +5% fell behind as oil slid, and defensives broadly lagged. The plateau's real signal sat at the two ends: the market voted soft landing through financial leadership and voted disinflation through energy stalling: paving the way for the Sep 2024 cut.

Cuts opened with 50bp in Sep 2024 and totaled 175bp to 3.50-3.75% by Dec 2025; QT's end was announced Oct 29, 2025 with runoff ceasing Dec 1. Cuts plus expanding earnings reignited growth: communications +37%, technology +33%, discretionary +25%.

The information was in the laggards: staples −3%, real estate −6%, health care just +2%: recession hedges were systematically abandoned. Against 2019 (utilities +40% in a cutting era), the same policy produced the opposite fate for defensives: 2019 bought insurance, 2024-25 returned it.

Four straight holds at 3.50-3.75% across Jan/Mar/Apr/Jun 2026 (April went 8-4, the most dissents since 1992), with a split dot plot: nine of the eighteen submitted dots see at least one hike this year (new Chair Warsh did not submit one); Warsh took the chair on May 22; the $40B/month bill purchases that began in December are reserve management, not QE, slated through April. With easing expectations stalled, sticky inflation is back in the price.

The half-year scorecard from our data: energy +35% leads, technology +22% (the compute-power chain), industrials +18%, real estate +16%, materials +14% strengthening; communications −9% and discretionary −8% negative. Leadership has rotated from cut-beneficiary growth toward sticky-inflation beneficiaries: consistent with the committee's hawkish tilt. This era is live; readings update with the latest session.