STOCK MARKET • S&P • FED UPDATE
In this unusual post-pandemic macro environment the Fed’s dual mandate—full employment and stable prices—are in direct conflict.
And so stocks have seen extreme volatility and have sold off about -10% since the Jackson Hole speech.
Stocks sold off on yesterday’s 75 basis point hike and Powell’s hawkish comments in his afternoon press conference. Some choice quotes:
The S&P has again fallen -20% from its peak and the Nasdaq has again fallen -30% from its peak. Both last saw these low levels in July before the summer bear market rally.
Just 15% of S&P 500 stocks are trading above their 50-day moving average; just 10% of Nasdaq 100 stocks are.
Rates are going to continue higher until the Fed sees “compelling” evidence that inflation is moving in the right direction.
Such erratic markets facing certain, known headwinds makes for an extremely difficult trading environment. Tactical, defensive allocations to cash and cash-like instruments will be helpful in avoiding catching a knife that’s both falling and bouncing around.
This chart from Ned Davis Research shows S&P 500 performance during different speed rate-tightening cycles.
Fast hiking/tightening leads to volatile, flat performance historically.
Research from Bank of America shows that in advanced economies, once inflation breaks over 5%, it takes an average of 10 years for it to drop back down to 2%.
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The views expressed above reflect the views of EdgeTech Analytics, LLC and are for informational purposes only. These views are not intended to serve as a substitute for personalized investment advice. Past performance is no guarantee of future results and no investment strategy or methodology can guarantee profits or protect against losses.