Most of you probably know what this past week was like in market land. Enormous swings up and down. The NASDAQ losing 2K points from its high just 14 sessions ago. Entire indexes giving up all their 2021 gains.
Shortly after the open on Friday, things went south again. The NASDAQ peeled off another 350 points, the DOW plunged red by another 200+ the S&P was blood red by 40. It was another slaughter day. Until….
What’s it all mean? Are we at an inflection point in market land now, and the big bull market is over? Probably not just yet. That said, Quad hangovers can indeed extend several days, as traders reposition and rethink their futures roll outs. But make no mistake, the Fed’s statements, along with Bullard’s opinion, has changed the narrative some. We might see a much more volatile next two weeks as they try and square up all of this. Caution is warranted.
Last Friday, the DJIA, S&P 500 and NASDAQ all closed up. But too big to fail banks lost billions of dollars in market cap.
Among the biggest losers were Citigroup — closing down 1.7%, Credit Suisse — down 1.6%, and Deutsche Bank — down 1.3%.
In the second tier, JPMorgan Chase, Barclays and Goldman Sachs closed down between 0.1% and 0.4%.
Their problem appeared to be the flattening of the Treasury yield curve.
The equities market is a very strange beast, it truly is. Let's take Friday for example.
The fed has been pretty straight forward in telling you that they are going to hike rates until they get up and over 5%. Despite the howls from the market participants, Powell has also said that there would be no rate cuts in 2023.
But Wall street doesn't believe him. See, they've got all this history about the Fed, and for decades the play was always the same. Fed hikes rates to cool down an economy, overshoots, panics and then starts cutting rates.
When rates are being cut, stocks move higher. Why? Companies can borrow more money at a cheaper price. They can use that money to buy up their own shares, and thus reduce the float and therefore push the stock price higher.
Wall street LOVES low rates and the evidence is easy to see. Look at what the DOW has done since 2010. After the 08/09 financial crisis, the fed went into panic mode and printed money like madmen. Do you know where the DOW was in 2010?
No, really.... think about this for a minute. The DOW Jones has been in existence since 1896. Did you know it was that old? Yessirree it is. And from 1896 all the way to 2010 the best it could do, was end the year at 10,600. That's it. 10K in over 100 years.
From 2010 to 2022 it made it to 34,561. Now the back of the cocktail napkin tells me that this is a gain of about 24,000 points.
So, if it took 114 years to go from its humble beginning of 12 stocks, to the current 30 stocks in 2010 and only gained 10K points... why did we gain 24K points in just 12 years? What changed?
You all know the answer to this riddle. Zero interest rates and trillions of freshly minted/printed dollars, that's what. If the fed is cutting rates, and/or keeping them there, AND printing trillions at the same time, the market gets orgasmic and up it goes. We have the proof, it's there in black and white.
But the fed has changed course now, and has been aggressively hiking rates. Well that's sort of peeing in their punchbowl and they hate it. That's why in 2022 we saw the S&P down 20% and the debt heavy NASDAQ down 34%.