The Yellen Put, which was previously known as the Bernanke Put and before that the Greenspan Put is on the way out
The Wall Street Journal with the 'Yellen Call':
How the 'Yellen Call' Will Keep Stocks in Check (may be gated)
The article, in summary says
The Bernanke / Greenspan put was supposed to underpin share prices:
- In the late 1990s traders became convinced that if stocks fell too hard, the Fed then-Chairman Alan Greenspan would cut rates and stem losses ... like a put option to insure against losses
But now ... the Yellen call is likely to keep stocks in check
- The Fed no longer looks likely to raise rates four times this year ... but it is still intent on raising them
- Now, rather than thinking the Fed has provided them with a put, investors might be better off thinking they have provided the Fed with a call option
- ... the stronger the stock market becomes, the more emboldened the Fed could feel about its ability to raise rates
- If it does so, that could put a lid on rising share prices and valuations
This doesn't mean that stocks will necessarily slump due to the Fed's actions. But it will result in a short of push-and-pull between investors and the Fed. That could mean share prices may be in for a prolonged period of subdued gains.
