Nobody likes what the Fed is expected to say tomorrow. Here’s the last week of stock indexes (SPY, IWM, QQQ) and bonds (BND, TLT).
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Fed expectations.
FED RATE HIKE ESTIMATES FOR TOMORROW
BARCLAYS 75BPS
DEUTSCHE BANK 75BPS
GOLDMAN 75BPS
JPMORGAN 75BPS
JEFFERIES 75BPS
NOMURA 75BPS
TD 75BPS
WELLS 75BPS
BNP 50BPS
BOFA 50BPS
CITI 50BPS
CREDIT SUISSE 50BPS
HSBC 50BPS
MORGAN STANLEY 50BPS
STANDARD CHARTERED 50BPS
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That’s a strange way to put it. Presumably everyone wants and expect the FED to fight inflation and increase rates, right? I’m gonna LOVE what the FED is doing. I’m also gonna LOVE that those “nobodies” don’t like it, because hopefully it’ll make everything more reasonably priced than it has been.
The world is net long stocks and bonds, and you’ve seen how they’ve both been reacting this week to the increasing pressure on the Fed to accelerate their rate hikes. Both will fall if hikes are larger than expected, so in that sense the average “everybody” is going to be unhappy. Those who have more cash and less investments will be able to buy cheaper.
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The emerging story appears to be that the Fed was spooked by the latest upside CPI surprise and decided to do a 75bp hike but 1) because it was in a black-out period and 2) didn’t want to surprise markets, called up the WSJ and leaked the news
so better to see the market crash before rather than after the surprise, i guess?
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Cross posting the excellent macro video from Einhorn here as well as inflation.
Genuine buying opportunity or catch a falling knife?
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Falling knife, IMO. There will be a short term rebound next week, but then more sales afterwards. TBH, market valuations prior to the pandemic were already inflated due to unnecessarily easing monetary policy. Valuation should be a lot lower.
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Agree. I added SPY short yesterday on the Fed news and am adding a bit more today.
If the model is “raise rates until commodity prices fall and tame inflation”, well, there’s no shortage of commodity demand right now so that’s going to take a lot of pain. I don’t think they’ll do that, but I think it’ll be bad when ppl realize they can’t or won’t control inflation due to constraints from our $30T in debt.
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I hope so. I’ve only closed out half of what was my hedge, but has turned into my only stock investment.
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There’s an optimist in the big house.
- Biden Says That a Recession Is ‘Not Inevitable’: AP
SPY -3.3%
QQQ -4.0%
IWM -4.6%
And this was off the lows with an modest end of day rally too.
Bonds, oil, and gold were good choices, all up about 1%.
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S&P 500 is only 13% above the pre-pandemic high, but earnings have gone up. I don’t have enough knowledge or data to compare.
VXUS (Total Intl Stock Idx Fund) is already below the pre-pandemic high.
Yes, that is why I added that prior to the pandemic the Fed had engaged in unnecessary monetary easing. We have to go much lower than the January 2020 valuations, IMO.
BTW, earnings aren’t going to stay at current levels, at least in the industries I follow closely. Samsung announced earlier today they’re asking equipment suppliers to put orders on hold for a few weeks. In the semi-cap industry that is a really bad signal.
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What’s the reason? Low demand or not enough shipping capacity?
In this case, it means Samsung anticipates decline in chip demand. They already have sufficient installed capacity to satisfy foreseeable demand.
Samsung is the first to freeze orders. Next big shoes to fall would be TSMC and Intel. Wondering what Intel will do, as their management has been lobbying Western capitals asking for money to build new fabs in the name of “national security.”
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it looks like we haven’t had the much sought for “capitulation”
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SPY YTD curves for each year. 1931 was a bad year, but we’re not looking so hot this time around either.
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Market commentary
It’s worth noting that we’ve had this large decline in the market multiple and the Fed has only raised rates to 1.50%, and still has a $9 trillion balance sheet.
We think the more likely scenario is that interest rate increases are effective in reducing headline inflation and throws the economy into a recession… If the Fed succeeds in taming inflation through interest rate hikes, it’s going to take a cut out of economic activity, and that’s going to mean lower earnings for the S&P 500. These estimates haven’t adjusted to this coming reality yet.
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Some update from Micron’s outlook…
https://www.reuters.com/technology/chip-stocks-fall-micron-outlook-signals-easing-demand-2022-07-01/
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