How Much ‘Fed’ Has the Market Priced In?From mine, your 2022 investing / trading 'equation' looks like this: more Fed equals more volatility. The world's most influential central bank confirmed it will act quicker than initially anticipated to reduce its $9 Trillion balance sheet. This is known as 'quantitative tightening' (QT) - intended to reduce the supply of money. And it's about 12+ months overdue...
Why Rates need to Rise Above Inflation LevelsWhen adjusted for inflation, interest rates are deeply negative. In fact, they are historically as low as we've ever seen. As regular readers will know, this is a large reason why risk assets have rallied so much the past couple of years; i.e., your cash is effectively trash (losing some 8% per year).
Wall St. Cut Expectations for 2022Stocks finished 2021 on a high. What's more, most analysts had modest expectations for more gains in 2022. 90 days later and the world has changed. Never before (in my 25 years following markets) have I seen such a broad range of outcomes. But as we wrapped 2021... I felt returns this year would be 'single digit' at best.
S&P 500 Loses 5% for Q1 2022Yesterday I warned readers to treat this rally with caution. Let's just say it was "tripping a few wires". For example, meme stocks were rallying more than 150%... Cathie Wood's ARKK ETF was starting to move sharply... and short-term option trading hit 2021 frenzy levels. Market froth was back...
Be Wary of this Near-Term RallyDo you trust this rally? Is the buying demand real or synthetic? It's been a 'rip your face off' rally the past three weeks. Earlier this month I suggested that "Markets Could See a Near-Term Bounce"... turns out they did just that.
Bond Markets are Always Early… and Typically RightThe stock market is euphoric. It's rising faster than a 1999 internet stock! The bond market however does not share its new-found enthusiasm. It's starting to dust off the "recession playbook". Too early? Maybe... but it does remind me of an old Wall Street saying... "Bond markets are always early... and typically right"
Rates, Inflation and Oil to Dictate the NarrativeTune into any mainstream financial market headline - the narrative is bound to include inflation, interest rates and the price of oil. This is what's most likely to drive the price of stocks for the balance of the year...
Rate Hike History Lesson: Bottoming is a ProcessWith the Fed set to raise rates as much as seven times this year - how safe is it to meaningfully increase your exposure to stocks Is there more downside to come? And is the bottom for 2022 now in? These questions (among others) are top of mind for most readers.
Is this Near-Term Rally the ‘Real Deal’?This market has a '2007 feeling' about it. October 2007 to be precise. Approx. 15 years ago, markets were setting new record highs (up ~50% over 3 years) however the bond market was telling us something else.
Powell Reiterates ‘Price Stability’ Risk Fed Chairman Jay Powell has two very difficult choices. On the one hand - the Fed must do "all that it takes" to fight damaging persistent high inflation - where CPI could exceed 10% over the next few months. On the other - failure to address these risks pose a much larger threat to the economy.
Why It Makes Sense to Buy “Peak Fear”This post examines the annual returns on the S&P 500 if buying when the VIX hits (a) 35 and (b) 45 (i.e. peak fear). In summary, it pays the buy when everyone is selling....
Relief Rally as Powell Delivers 7 Rate Hikes for ’22Make no mistake - this was a hawkish Fed. Seven rate hikes this year is on the more aggressive side - but overdue. Powell adding the Fed are willing to move above neutral over the next two years... but stocks rallied on the news.
