In three years, the S&P 500 index soared by 82%. Meanwhile? The Federal Reserve’s balance sheet shrank by 27%. Doesn’t that sound a bit counterintuitive?

What’s the market’s view now? The probability of a 25-basis-point rate cut this week is as high as 86%. But here’s the issue—economic pressures are still looming, and rumors about a potential change in Fed leadership haven’t died down. With all these factors mixed together, policy direction is becoming increasingly unclear.

Is traditional theory being challenged?

The stock market’s strong performance during quantitative tightening has indeed upended many people’s assumptions. Previously, everyone thought that when the central bank tightened liquidity, the stock market was bound to cool off.

Charlie Bilello’s data is right there: the S&P has surged. And the rally has been pretty fierce.

What does this indicate? The logic behind market operations may be much more complex than what’s written in textbooks. Tightening liquidity doesn’t necessarily mean a bear market—it all depends on how other variables interact.