Dow losing almost -1000 Friday .. when will it end? Do we get a V recovery?

When will it end?

If I knew that I would invite all of you for a week cruise on my 160 feet luxury yacht I will buy from my profits.
 
Closet_Gamer said:
I did a little searching...turns out in January they said that run-off will be the primary tool.

https://www.reuters.com/business/fe...main-tool-shrinking-balance-sheet-2022-01-26/

Pulled this from another article...looks like maturities do skew short a bit.

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My understanding was that the Fed adjusted for maturing securities by buying/selling/not buying/not selling as appropriate to hit their QE/QT monthly targets.

So if $10B of bonds mature in April and they want to do $30B of QT this month, they would only sell the additional $20B of bonds.

I also think they bought maturities according to some plan they had in terms of affecting different parts of the yield curve, but that's beyond my understanding of economics as to which/how much/why.
 
It will end when it turns around to go up. But, just can't rush these things.
 
It's going to be different this time. :)
 
I don't know how anyone can make a reasonable prediction considering the past decade+ of unreason.

The market could go down, up, sideways.

Could you have predicted stuff like bitcoin going from sub $1 to $60,000? Or houses that were selling for $100,000 a decade ago selling for $600,000?

I would have thought gold would be $2500 by now but it isn't.
 
Like they say, Rome was there 2,500 years ago, and it's still there today.

The market will return--sometime. But we now see how fragile economies can be and what can be done in a year may take years to repair.

Only time will tell.
 
I don't have a crystal ball to tell me what the market will be in the future. Though I was pleased to see the downturn on Friday as I made an interfund transfer in my TSP.
 
I agree that inflation needs to get under control. Sort of analogy, current Fed is dealing with hangover from all the excess money that has been pumped into the economy over last several years.

There may be some recession next year, but I think this year being an election year that both parties want to minimize damage. Not a V recovery, but an attempt to avoid the bottom falling out.
 
daylatedollarshort said:
I wouldn't be surprised with a 50% market drop, and feel it is possible interest rates may have to go over 8.5% to bring down inflation. So, no I don't think that large of a rate increase is already baked in to the bond or stock market right now.

I switched to dividend stocks and no more allocation than I won't lose (too much) sleep over a 50% market value drop. Our fixed income is all in stable value funds or individual bonds to be held to maturity.
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Probability of this is rising...Forward P/E ratio is well over average at 19x. If we saw a big drop in multiple even to average of ~15x combined with rate rising and earnings dropping...50% retrace seems very possible. Wouldn't be my base case scenario but definitely higher probability than 3 months ago.
 
38Chevy454 said:
I agree that inflation needs to get under control. Sort of analogy, current Fed is dealing with hangover from all the excess money that has been pumped into the economy over last several years.
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One needs to stop drinking before one experiences a hangover.
 
Magus said:
Probability of this is rising...Forward P/E ratio is well over average at 19x. If we saw a big drop in multiple even to average of ~15x combined with rate rising and earnings dropping...50% retrace seems very possible. Wouldn't be my base case scenario but definitely higher probability than 3 months ago.
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It just seems like dot.com bust and 2008 vibes here, like crazy bidding wars on houses and crazy high tech salaries that enable the bidding wars. Houses here are still like tulip mania. Maybe a little less crazy because houses have more utility than flowers.
 
Montecfo said:
Lael Brainard a week or so ago said balance sheet reduction would begin as soon as May and "at a rapid pace" so I think they Fed has, well, evolved on the issue.
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Don't forget about the large amount of mortgage back securities they also hold. They need to get them sold too.
 
Magus said:
Probability of this is rising...Forward P/E ratio is well over average at 19x. If we saw a big drop in multiple even to average of ~15x combined with rate rising and earnings dropping...50% retrace seems very possible. Wouldn't be my base case scenario but definitely higher probability than 3 months ago.
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A 50% drop puts us back in the S&P 2400 range. A 50% retracement, per TA, would be S&P 3500-3600 (half of the entire move from Mar 20 low). The former, while always possible, seems a bit extreme unless some unknown systemic issue arises and terrifies the market. The latter, while painful and jarring for newbies, would be well within the norms of price action and right near the 200 week SMA, EMA.
 
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Montecfo said:
Well the phrase the "balance sheet" would cover the MBS also.
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Only treasuries were mentioned. The FED's balance sheet also contains MBS's, stuff left over from the SPV purchases during Covid, etc. In addition, there could be loans extended to banks through the Repo program and Discount Window.
 
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aja8888 said:
Only treasuries were mentioned. The FED's balance sheet also contains MBS's, stuff left over from the SPV purchases during Covid, etc. In addition, there could be loans extended to banks through the Repo program and Discount Window.
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Not sure what you are referring to but I'm sure the Fed is not overlooking MBS.
 
monte1022 said:
A 50% drop puts us back in the S&P 2400 range. A 50% retracement, per TA, would be S&P 3500-3600 (half of the entire move from Mar 20 low). The former, while always possible, seems a bit extreme unless some unknown systemic issue arises and terrifies the market. The latter, while painful and jarring for newbies, would be well within the norms of price action and right near the 200 week SMA, EMA.
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You see how much the value of long bonds have dropped in the last 6 months? Plug the same thing in the CAPM pricing model for stock valuations would be a ~25% drop in valuation. Add in a recession caused by rising rates and prices and higher volatility, 2400 is not out of the question. That would just put the forward P/E ratio around the long term average of 14-15x in that scenario, no where close to normal bear market lows around or below 10x. Again, it's not my base scenario but it is definitely possible. Stocks today are definitely on the high end of multiple valuations even with the declines this year. High multiples made sense in a ZIRP environment, less so in a 4-5% interest rate environment where we are headed.
 
Would you happen to remember what PE ratios were in early 2003 and 2009 at the trough of the last two bears? I remember all the talk about high PE's at the tops but don't think they ever got close to 10 at the bottom in either case. Might just be failing memory. Or could be my failing memory.
 
Magus said:
High multiples made sense in a ZIRP environment, less so in a 4-5% interest rate environment where we are headed.
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And we don't know if 4 -5% will be enough to bring down inflation. The mortgage rate on our first house in the 80s was 16%! If interest rates get that high again, then more investors may turn towards fixed income over stocks. I don't know what will happen, it is entirely possible, too, that low interest rates will go back to being our new normal in a year or two. We try to prepare as best we can for either scenario.
 
I don't see interest rates getting anywhere near the 12% to 15% level.

Think about home prices now. The median home price in the USA now is $375,000.

The median income in the USA is $31,000. Call it $62,000 for a household.

Save up 20% down, and finance the rest at 15% interest. That is $45,000 a year in interest on a $300,000 loan. For a income of $62,000.

There is just no way the USA can function with the current house prices, current wage level, and those interest rates.

It is almost revolution numbers.
 
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