Illustration: Aïda Amer/Axios

The No.1 risk to the stock market continuing its outperformance next year is not President Trump or consistently weak U.S. economic data or even China, senior analysts at John Hancock Investment Management say, but whether or not the Fed continues to stimulate the economy through what they call "not QE."

What it means: Fed chair Jerome Powell has insisted the central bank's bond buying program — initiated after rates in the systemically important repo market spiked to five times their normal level in September — is not quantitative easing.

  • But "it walks and talks" like QE, analysts say, and has injected close to $1 trillion of liquidity into the repo market and added more than $260 billion to the Fed's balance sheet.

The intrigue: The new "not QE" program was "like a fourth rate cut this year," John Hancock co-chief investment strategist Matthew Miskin said during a media briefing Tuesday in New York. And it has given a boost to the stock market.

The big picture: "The equity market has benefited from a super aggressive Fed," Ethan Harris, head of global economics at Bank of America Merrill Lynch, told Axios during a separate event Tuesday at BAML headquarters.

  • "I mean the Fed basically anesthetized the markets to the trade war escalation this summer."
  • Because the Fed was able to mask the economy's pain from the market, a strong sell-off may be needed to motivate the Trump administration to secure what Harris calls a "skinny" trade deal with China and avert the Dec. 15 tariffs that will hit billions of dollars worth of consumer goods.

The converse is also true, Miskin argued.

  • "If things turn more sour because we're not getting a trade deal or the tariffs go on Dec. 15, the stress underpinning ... the market will re-emerge and the Fed's definitely going to have to be there," he told Axios.

The bottom line: Miskin and John Hancock co-chief investment strategist Emily Roland expect the Fed will continue to pump money into the market, pushing its balance sheet above the record $4.5 trillion it reached before it began unwinding in 2017. That will help buoy the stock market for further gains of 5%–10% next year.

  • "The challenge is if we run into a recession, could they be out of tools or could they end up in a BOJ or ECB position, which is totally unenviable," Roland said.

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