Thus far, the markets in June seem poised for a further bounce higher. That does not mean we are in the clear throughout the summer, but let’s take it one month at a time. Here is what I see: Between now and June 17, 2022, I am betting for another move up in the equity indexes. We could see a rally that takes us up to the 4,300-4,400 level on the S&P 500 Index. It will likely be the kind of surge that floats all boats higher as it rises. The stocks that have been hurt the most this year…
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Investors prepare for the Fed
Investors are preparing for the Federal Open Market Committee (FOMC) scheduled for Wednesday, May 3-4, 2022. Stocks have been sold down to a level that may have discounted some of the bad news most expect. Is it enough? Could a couple of days around May 4th see a re-test of this year’s lows? It depends on how hawkish the Fed is prepared to be. Expectations are now for a 50-basis point hike in the week ahead, and two more in the next two monthly meetings. The markets are also expecting a substantial reduction in the Fed’s multi-trillion-dollar balance sheet. That…
Earnings matter, but the Fed trumps everything
The first quarter 2022 earnings season kicked off this week with mixed results. Thus far, the standouts were Netflix and Tesla. The two companies’ results could not have been more different, but in the end it didn’t matter. Netflix disappointed, reporting its first loss in subscribers in recent memory, while investors were expecting a gain in subscriber growth. There were many reasons for this including the loss of 700,000 Russian customers as a result of the Ukraine War. At last count, the stock lost 37% of its worth in three days and took the NASDAQ index down along with it….
The Fed tightens further
It is called “Quantitative Tightening,” or QT, a term used to describe how momentary authorities are planning to shrink an $8.9 trillion balance sheet. The U.S. Federal Reserve is the only central bank in the world (and in history) that has attempted to implement a reduction in assets. The first time they tried, things did not go so well. “Quantitative Easing,” or QE, may be a more familiar concept to readers since we have been experiencing some form of QE (monetary stimulus) since the Financial Crisis of 2008. QT is the opposite. The Fed first tried to reduce its balance…
Markets are too frothy
Speculation is not quite rampant but it’s getting there. Volume is trailing off and the short covering that has boosted this market higher is fizzling. These are signs that beg for a nice sharp pull back that is overdue. As I have been suggesting (hoping) over the last two weeks, negotiators from Russia and Ukraine are making progress. Investors are beginning to hear more positive statements from both sides. A combination of factors are pressuring negotiators to cut a deal that would be acceptable to both heads of state. I expect that to happen soon. Remember that we are now…
Markets needs to consolidate
Commodities continue to run. Interest rates are hitting new highs, and stocks are holding their gains from last week. Nothing has changed on the geopolitical front and all eyes are once again focused on the Fed and its’ next meeting in May 2022. What else is new? Stocks have been surprisingly resilient this week in the face of dire predictions that a recession is just around the corner. Many investors, and those who preach to them, are convinced that the Federal Reserve Bank is intent on hiking interest rates to a level where the economy will collapse as inflation continues…
A whiff of stagflation
The economy is slowing. Inflation is climbing. Investors are worried that these trends appear to be a recipe for the “S” word. The economic concept of stagflation where the witches’ brew of a faltering economy, aided and abetted by skyrocketing inflation, harkens back to the malaise of the late 1970s. At that time, interest rates rose to nearly 20%. Inflation, as measured by the Consumer Price Index (CPI), reached an annual average of 13.5% by 1980. Oil prices (like today) surpassed $100/barrel. Blame for this period of stagflation fell squarely on OPEC, a newly formed energy cartel of oil producers,…
Do not chase stocks
Commodities are soaring. Interest rates are falling. Stocks can’t get out of their own way. All of this is occurring while the first war in decades continues to rage in Ukraine. Seems to me that any gains in the market averages next week will remain dead cat bounces in this bear market. Yes, I hate to be a squeaky wheel, but I’ve got to call it like I see it. We have a much greater chance of sliding lower from here than higher. Here’s why. Investors received a new lease on life this week when Fed Chairman Jerome Powell, testifying…
Stocks bouncing in a box
Over the next three weeks, equities will likely trade in a wide range. The caveat to that forecast: if the Fed suddenly changes policy, or if a shooting war erupts in Ukraine. Those are two big ifs. Unfortunately, I can neither forecast when or what the next Fed head will say, nor predict Vladimir Putin’s next move. The next Federal Open Market Committee (FOMC) meeting occurs in mid-March. The latest CPI and PPI inflation data show inflation accelerating at a rate much higher than economists and the Fed expected. It is all but certain, according to the bond market vigilantes,…
Markets are trading like a penny stock
Two major events this week had investors rushing from one side of the boat to the other. The bond auctions, followed by the Consumer Price Index report, were both surprises in the opposite directions. Neither could keep the markets up. On Wednesday, February 9, 2022, the government held its usual U.S. Ten-Year Treasury Bond auction. Bond traders were fearful that investors, especially overseas bidders, would shun the auction, due to inflation fears. Instead, bidders gobbled up the offerings with foreign purchasers accounting for more than 70% of the buyers. The next day, the 30-year bond auction was so-so at…
Did the bulls see their shadow?
On Groundhog Day, Wednesday, February 2, Punxsutawney Phil saw his shadow, predicting that there will be at least six weeks of winter weather ahead of us. Given the market action of the last few days, can we expect inclement weather ahead for market bulls as well? Last week, I warned readers to expect the stock market to bounce. It did, retracing 50% of the market’s decline in about four days. I also warned that investors should not get comfortable with this bounce because after the bounce, markets should go south once again. That prediction seems to be playing out. It…
Beware the hikes of March
There is a more than an even chance that the Federal Reserve Bank hikes interest rates at least 25 basis points by the end of March 2022. Several analysts expect another three hikes by the end of the year. As an equity investor, this should concern you. This week, both the Consumer Price Index (CPI), and the Producer Price Index (PPI) came in as expected. But “expected” does not mean anything like good on the inflation front. On a year-over-year basis, CPI was up 7%, while PPI hit 9.7% for all of 2021. And while economists debate whether inflation and…
Fed’s meeting notes throw markets a curve
Investors were set back on their heels this week (January 3-7) after reading the latest member comments from the Federal Open Market Committee’s December 2021 meeting. It suggests that the Fed is prepared to tighten far sooner than most expected. Members seemed to say that the Federal reserve bank central bank was prepared to shrink its $9 trillion balance sheet “much sooner and faster” than anyone expected. This is in addition to the already-announced plan to reduce its asset purchases faster than they first planned. Couple that with expectations that we could see three interest rate hikes this year and…
Markets are heading for trouble
The continuing volatility in the stock market is troubling. It is likely signaling difficult times ahead as early as January or February 2022. As such, it is time to consider risk management. After more than a decade of steadily rising equity prices with few interruptions, investors have been lulled into believing that investing in stocks is a riskless game of never-ending profitability. Newcomers to the stock market arena, like your typical Robinhood investor, have been using stocks to supplement, or even replace earned income. Unfortunately, I believe we are entering an environment where the investment themes are changing to our…
Markets keep churning
As most investors expected, the Federal Open Market Committee (FOMC) announced the start of their tapering effort but doubled the pace of the monthly taper to $30 billion/month until March 2022, when the effort will conclude. In addition, FOMC members see three, 25-basis-point increases in the Fed Funds interest rate next year, and more in 2023. Faced with the end of a decades-long era of loose monetary policy, historical behavior would indicate interest rates up, equities down. That still seems a good bet despite the market’s immediate reaction to the Fed announcement. Some participants may still be scratching their heads…
All eyes on the Fed
The stock market snapped back from the brink this week and recouped the losses suffered since Thanksgiving. In the coming week, investors will switch their focus on just how much and how soon they can expect monetary policy to tighten. In the meantime, we have had some good news. The Omicron variant of the coronavirus seems to be less serious than first feared. Existing vaccines, according to some drug companies, should be able to handle this mutation with an added booster shot. In the U.S., those booster jabs are already working through the population. That should shore up any worries…