It seems that the S&P is poised to endure a correction at least. The MACD has crossed into bear market territory where we may retest the projected 200MA. We can see 4000 of the S&P, possibly lower.
I like how one Josh Brown of Ritholtz said earlier on CNBC that once Nasdaq breaks 200MA, it will be puking because small caps will panic sell along mega-cap companies. Lets break down what is happening:
Equities
Since 2008, the Fed has done something it really hasn't even done before which was inject liquidity into the markets through moves like purchasing corporate bonds. The issue is that the market moved away from P/E into QE gains, meaning instead of investing in a company that is doing well with great revenue and strong earnings, the investors essentially rode the wave up.
Add to this that the Fed slashed rates to 0.45% for an extended period of time which has never happened before. The only time the FFR was close was 1958 with 0.68% for a matter of weeks. We've had 0.45% since 2008 essentially. This cheap money has spread around the world and unlike 2008 where the inflation rate remained 2-3%, now its over 10% (when using 1980 CPI method). The Fed is now in a very tight place right now because it HAS to increase rates to fight inflation that is spiraling out of control but it can't raise them too high because it will induce recession as it always has. The issue is the Fed can't raise them by a measly .25 basis points either to fight off 7% inflation either.
So what is the result? Pain in the stock market. The market will have to shift back to investing in companies based on P/E. Today, most companies are trading at 5-20 times earnings. This is absolutely insane and this will mostly be corrected this year. Just look at the growth from March 2020 and ask yourself if this growth was organic. It's pretty simple that this was direct intervention by the Fed.
It's over now. The Fed can not reverse course because inflation is spiraling out of control and blaming low supply won't suffice. The core to inflation is rapidly expanding money supply, not product supply/demand. I think the market is going to fall and return to a means of actual growth investing, not speculation. Raising interest rates will hurt emerging markets as well.
Crypto
So, where do crypto currencies stand from all of this? It's a hard one to tell but, I believe that Bitcoin and crypto will do as it always has since being listed. It will follow the stock market. Look at equities on March 2020 and look at Bitcoin March 2020. Bitcoin was halved by 50%. My advice is do not look for stability in a bear market in crypto unless investors take their money from equities and invest it in crypto but in a bear market this is unlikely has people will flee to safeties like treasuries or more likely keeping cash while waiting for a bottom. Again, look at the days equities had significant selling or gains, and look how Bitcoin follows the market.
Personal thought
My hope is that the Fed doesn't reverse course and increase QE because this bubble will get exponentially larger. Last time the Fed rose rates during Trump's term, there was pain in emerging markets and even in the US the markets reacted negatively. I think this time around the Fed has its hands tied and must raise rates to combat inflation.
I like how one Josh Brown of Ritholtz said earlier on CNBC that once Nasdaq breaks 200MA, it will be puking because small caps will panic sell along mega-cap companies. Lets break down what is happening:
Equities
Since 2008, the Fed has done something it really hasn't even done before which was inject liquidity into the markets through moves like purchasing corporate bonds. The issue is that the market moved away from P/E into QE gains, meaning instead of investing in a company that is doing well with great revenue and strong earnings, the investors essentially rode the wave up.
Add to this that the Fed slashed rates to 0.45% for an extended period of time which has never happened before. The only time the FFR was close was 1958 with 0.68% for a matter of weeks. We've had 0.45% since 2008 essentially. This cheap money has spread around the world and unlike 2008 where the inflation rate remained 2-3%, now its over 10% (when using 1980 CPI method). The Fed is now in a very tight place right now because it HAS to increase rates to fight inflation that is spiraling out of control but it can't raise them too high because it will induce recession as it always has. The issue is the Fed can't raise them by a measly .25 basis points either to fight off 7% inflation either.
So what is the result? Pain in the stock market. The market will have to shift back to investing in companies based on P/E. Today, most companies are trading at 5-20 times earnings. This is absolutely insane and this will mostly be corrected this year. Just look at the growth from March 2020 and ask yourself if this growth was organic. It's pretty simple that this was direct intervention by the Fed.
It's over now. The Fed can not reverse course because inflation is spiraling out of control and blaming low supply won't suffice. The core to inflation is rapidly expanding money supply, not product supply/demand. I think the market is going to fall and return to a means of actual growth investing, not speculation. Raising interest rates will hurt emerging markets as well.
Crypto
So, where do crypto currencies stand from all of this? It's a hard one to tell but, I believe that Bitcoin and crypto will do as it always has since being listed. It will follow the stock market. Look at equities on March 2020 and look at Bitcoin March 2020. Bitcoin was halved by 50%. My advice is do not look for stability in a bear market in crypto unless investors take their money from equities and invest it in crypto but in a bear market this is unlikely has people will flee to safeties like treasuries or more likely keeping cash while waiting for a bottom. Again, look at the days equities had significant selling or gains, and look how Bitcoin follows the market.
Personal thought
My hope is that the Fed doesn't reverse course and increase QE because this bubble will get exponentially larger. Last time the Fed rose rates during Trump's term, there was pain in emerging markets and even in the US the markets reacted negatively. I think this time around the Fed has its hands tied and must raise rates to combat inflation.
Trade active:
Trade Active: Earnings Season rally will take a back seat to FOMC and economic data.
