Throughout 2014, the Federal Reserve has tapered its bond purchasing program as it sees a moderate rate of growth and overall economic health in the U.S. While fears of the taper caused a major correction in the middle of 2013, the actual taper has done little to stocks, which corrected heavily twice in 2014 on separate news. Still, stocks remain up and in a bullish trajectory for 2014, with little signs of weakness even as a correction from the 2000 is taking place.

Any investor in the current market needs to be a close student of history and consider how changes in money supply and money flows can impact the stock market. There are two reasons for this. One, understanding how the market has been impacted by similar events in the past can help one formulate a hedging strategy—assuming the same thing will happen again, you can protect yourself by shorting more stocks or buying puts on SPY, as George Soros’s multibillion fund recently did. Two, understanding the historical pattern will force you to ask yourself if this time is any different and, if so, why.

So how did tapering impact the markets in the past? We have had four major QE events, all of which saw corrections shortly before or after ending. If we look at the chart for the S&P 500 over the past six years, it’s a bit hard to see the corrections, but they’re there:

Taper-1

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Zooming in closely, each event shows a major downturn at the time of an end to the QE program. Sometimes the correction was shortly before, sometimes after, but the correlation is quite tight.

Taper-2

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In April 2010, the Fed announced it planned to end its first round of QE, just when the market began its downturn. Then in November, the Fed announced it would begin a new round of QE. This was the result:

Taper-3

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A clear bullish pattern was largely unhindered, and 2011 looked like it would be a great year for stocks by summer. This round was supposed to end in June, the Fed insisted, and no one expected it to last longer. Then this happened:

Taper-4

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Immediately stocks reacted and were hit harder in July as the U.S. Congress flirted with defaulting on U.S. debt. With fiscal chaos and monetary tightening, the market fell over 15% in less than three months, and ended the year flat.

With such economic weakness and fears of a relapsing economy, the Fed began its Operation Twist in September and then announced a further QE program that would be its biggest: an open-ended bond-buying program that eventually would last until the present day. It is difficult to exaggerate stock market performance for this period:

Taper-5

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A sustained and bullish pattern, with stocks rising steadily with two or three major corrections per year lasting no more than a month or two, showed that the QE program worked—for stocks, at least. It also demonstrates a perhaps more worrying truth: since 2009, strong bull markets in the United States have been accompanied by a QE program of some kind. Loose monetary policy has allowed stocks to appreciate, no matter whether you think this is good or bad for the broader economy.

The implications this has for your individual portfolio are significant. With the most recent QE program ending in two months’ time, will equities reverse as they did in 2011? Will corrections be deeper, last longer, and provide more volatility to the market? While no one knows for sure, this is certainly a concern for many market participants. And this is why volatility has been on the rise and hedge funds have been buying puts at a greater pace.

There’s no way to know the future and there is always the possibility that this time may, in fact, be different. But to be in the market now, traders and investors will need to ask themselves whether now really is different, and why. If they don’t ask this question, or simply ignore the systemic risks of the monetary supply and the Federal Reserve, they could be missing out on opportunities to manage risk, augment returns, and hedge their holdings.