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

C

cyber888

Thinks s/he gets paid by the post
Joined
Aug 12, 2013
Messages
1,972
Many talking heads on Bloomberg/CNBC were saying "0.50%" interest rate hike was all 'baked in', then when Fed Chair said 'yeah, we'll put 0.5% on the table for May', then trader talking heads start talking "oh, it might get to 0.75%" and then the Fed answered back Friday afternoon "No, we're not doing 0.75% rate hike" - Guess they want to appease the market.

Was it an over-reaction? Do you think the broad market will recover next week? Or continue to deteriorate with 'go away in May'.

For the market timers and chartists here, where's the S&P support ? Anyone think, we'll get a V shape recovery? or will we be getting a recovery towards the 2nd half of this year after more rate hikes ?

Ahem .. market timing experts .. where's your crystal ball :popcorn:
 
Last edited:
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.
 
Fundamentals remain fairly solid on the corporate side. I think once Ukraine outcome becomes clear, we'll see a nice recovery.
 
marko said:
Fundamentals remain fairly solid on the corporate side. I think once Ukraine outcome becomes clear, we'll see a nice recovery.
Click to expand...

Agree with Marko. Much is already baked in and I'd be surprised if this current mayhem continues. Not confident on a V shape but don't see a 50% decline either (nothing near that). The consensus suggest you stay the corse.
 
The market has been heading down since November when Nadella sold 1/2 his Microsoft stock. Check it out. With the FED going to raise the FFR to ~3% by year end, bonds and bond funds will be slaughtered. Many stock prices are in nosebleed territory and I feel this "correction" is far from over.

Inflation is not going away and odds are it will continue for a few years. I was "there" in 1980 - 1982 and it wasn't pretty. We don't have a Paul Volcker to take the bull by the horns and raise the FFR above inflation rates like was done back then.
 
The gravy train is about to be over: no more stimulus, no more QE, no more SBA handouts, the pandemic is still wreaking havoc in different parts of the world with supply chain issues, there's an on-going war in Europe, and inflation is running wild.

I think this is just the beginning of a market downturn and it won't be reversed until there are signs of stabilizing inflation.
 
milford said:
The gravy train is about to be over: no more stimulus, no more QE, no more SBA handouts, the pandemic is still wreaking havoc in different parts of the world with supply chain issues, there's an on-going war in Europe, and inflation is running wild.

I think this is just the beginning of a market downturn and it won't be reversed until there are signs of stabilizing inflation.
Click to expand...

Beside no more QE, they will be executing QT, which will flood the economy with treasuries and mortgage backed securities that are on the near $6 Trillion FED balance sheet.
 
I'm well aware of all that ... but that's only one side of the picture.
Stocks growth have historically done well vs. Inflation over several years.
And that's because the stock market is not the economy, nor it is the supply chain. Companies are raising their product prices much higher, and therefore they will beat earnings with higher revenue. The US military complex is big big business and they are booming during war, and that spills over to economic growth.

milford said:
The gravy train is about to be over: no more stimulus, no more QE, no more SBA handouts, the pandemic is still wreaking havoc in different parts of the world with supply chain issues, there's an on-going war in Europe, and inflation is running wild.

I think this is just the beginning of a market downturn and it won't be reversed until there are signs of stabilizing inflation.
Click to expand...
 
cyber888 said:
Many talking heads on Bloomberg/CNBC were saying "0.50%" interest rate hike was all 'baked in', then when Fed Chair said 'yeah, we'll put 0.5% on the table for May', then trader talking heads start talking "oh, it might get to 0.75%" and then the Fed answered back Friday afternoon "No, we're not doing 0.75% rate hike" - Guess they want to appease the market.

Was it an over-reaction? Do you think the broad market will recover next week? Or continue to deteriorate with 'go away in May'.

For the market timers and chartists here, where's the S&P support ? Anyone think, we'll get a V shape recovery? or will we be getting a recovery towards the 2nd half of this year after more rate hikes ?

Ahem .. market timing experts .. where's your crystal ball :popcorn:
Click to expand...

My crystal ball is broken, as is my magic 8 ball.

That being said, my guess has been, and continues to be, that the Fed will do stepwise tightening until inflation abates, and then probably beyond that point. My read of recent Fed history is they have a tendency to overshoot. As a result, it would not surprise me to see a mild to moderate recession sometime in the next year or two.

I also think the Fed board members have varied opinions on how fast and how much to raise rates. I also think that their messages are fairly carefully scripted because they know how scrutinized their remarks are. I also think that their remarks outside of the actual Fed decisions and Fed meeting minutes are probably choreographed to give unofficial guidance to the market to have as orderly a response to Fed actions as they can. In other words, I think the Fed will want to float the notion of a 0.50% rate hike rather than have it be a total shock at the next announcement. (Similarly with a 0.75% hike, which I don't think is expected at this point.)

I am not a DMT but a LTBH low-cost broadly-diversified index funds type. Thus I don't care about interest rates, next week's performance, or any technical analysis stuff because my AA isn't set by any of those things. But I appreciate all those who do, as I think they do help with price discovery.

I'll still watch the CNBC talking heads when I go to the gym, but I don't take action in response to any of it.
 
cyber888 said:
I'm well aware of all that ... but that's only one side of the picture.
Stocks growth have historically done well vs. Inflation over several years.
And that's because the stock market is not the economy, nor it is the supply chain. Companies are raising their product prices much higher, and therefore they will beat earnings with higher revenue. The US military complex is big big business and they are booming during war, and that spills over to economic growth.
Click to expand...

The main reason the stock market is not the economy is because of the Fed and the Fed's are backed into a wall right now. Their number one mandate currently is to try to squash inflation by raising interest rates. This will slow the economy down. Companies were able to raise product prices because everyone was flush with cash with all the handouts from the past 2 years. Wage growth has not kept up with inflation from the past several months. The US is not directly engaged in a war right now and based on what I just found on the internet US military spend is only 3.7% of GDP in 2020 so I wouldn't call that significant even if it were to increase in the next few years.
 
Our WMC (wealth management company) that manages a portion of our taxable brokerage account is confident 2022 will be a positive return year in equities - and they believe returns will be 10% or more. Hope they are right!
 
I have no idea where it goes from here, but I would love to see the market go down another 50%+. It would be a great buying opportunity + great entertainment watching all the ensuing carnage.
 
Last edited:
aja8888 said:
Beside no more QE, they will be executing QT, which will flood the economy with treasuries and mortgage backed securities that are on the near $6 Trillion FED balance sheet.
Click to expand...

I'm 100% aligned that the end of the bull market in bonds will be a slow motion earthquake through the securities markets.

My guess is that QT will amount to simply letting the bonds mature over time without buying more, rather than proactively selling.

The fed is aware of these pressures and impacts. Unless they decide they must slam on the brakes due to inflation, I'm doubtful they will exacerbate rate volatility by simultaneously removing their demand and pushing out more as sellers. That would also make the inflation permanent as they would take losses on the bonds. If they let the bonds mature, they quietly pull cash out the system with repayments, which should also serve to dampen inflation.

A slow unwind of the balance sheet with more focus on moving rates around via their traditional levers would seem prudent.

Of course, I took one economics class in college and didn't do that well...:LOL:
 
Down one thousand points, as my friend says, I lost a new Ford F-100 pickup truck today.
 
Franklin said:
... The consensus suggest you stay the corse.
Click to expand...

But the consensus always suggest that you stay the course.

Even after the current slide, IMO equities are still overvalued in relation to earnings. I own some Dec 2023 and Dec 2024 SPY LEAPS that will give me the upside with limited downside, but I'm not real bullish on equities (but haven't been for quite a while so that shows you what I know).
 
Closet_Gamer said:
I'm 100% aligned that the end of the bull market in bonds will be a slow motion earthquake through the securities markets.



My guess is that QT will amount to simply letting the bonds mature over time without buying more, rather than proactively selling.



…If they let the bonds mature, they quietly pull cash out the system with repayments, which should also serve to dampen inflation.



A slow unwind of the balance sheet with more focus on moving rates around via their traditional levers would seem prudent.



:
Click to expand...


Anyone know the average duration of the bonds in question? I assume they are shorter term and that a lot have matured already, and the rest won’t take that long to.
 
This is the new normal for now. Markets will be volatile with such cross currents.

Don't listen to the talking heads that say rates hikes are "mostly reflected" in the markets.

This has never been true going back to November. There are a lot of young people in the market who have never been through a Fed tightening cycle (or maybe only that mild one in 2018) or do not fully understand that higher rates reduce the value of future cash flows (it's just math).

Stocks have the chance to overcome this, but it is a huge headwind. And the change from QE to QT is massive.

What to do now? Well hopefully you are holdings stocks that are well valued and make money, bonds with limited duration and cash.

The markets believe this rate cycle will be relatively brief.
 
Closet_Gamer said:
I'm 100% aligned that the end of the bull market in bonds will be a slow motion earthquake through the securities markets.

My guess is that QT will amount to simply letting the bonds mature over time without buying more, rather than proactively selling.

The fed is aware of these pressures and impacts. Unless they decide they must slam on the brakes due to inflation, I'm doubtful they will exacerbate rate volatility by simultaneously removing their demand and pushing out more as sellers. That would also make the inflation permanent as they would take losses on the bonds. If they let the bonds mature, they quietly pull cash out the system with repayments, which should also serve to dampen inflation.

A slow unwind of the balance sheet with more focus on moving rates around via their traditional levers would seem prudent.

Of course, I took one economics class in college and didn't do that well...:LOL:
Click to expand...

Well I guess the Fed could "address the balance sheet" by saying they will let it run off but I kind of doubt that. Although with the MBS they may have little choice.
 
I don’t think we’ve even reached the lows of February-March yet. I personally don’t think the talking heads have a clue what will happen. Keep your asset allocation and stay the course, unless you think you can’t stomach your assets allocation as it’s currently set up. Then modify it, but don’t market time it. Change it to something you’ll stick with.
 
luckydude said:
I have no idea where it goes from here, but I would love to see the market go down another 50%+. It would be a great buying opportunity + great entertainment watching all the ensuing carnage.
Click to expand...

The most I see it going down from where we currently are is minus 30 percent. This will get us back in line with the historical PE. But when has the market ever followed what seemed logical? So the final answer is who knows?
 
UnrealizedPotential said:
The most I see it going down from where we currently are is minus 30 percent. This will get us back in line with the historical PE. But when has the market ever followed what seemed logical? So the final answer is who knows?
Click to expand...

Yes and earnings keep rising, raising the target.
 
The only thing baked in the cake is what they know now and how they've chosen to process it. But you know what they say about all the available information. It changes every day. And every change changes or could change how investors process it.

Stocks were and still are overvalued. Not insanely by historical standards but up there. Inflation.... hard to know what to make of it. It's obviously real... and partially faked by those taking the opportunity wet their beaks. Call me cynical. 8.5% inflation and MMF are still paying near-zero? (I haven't actually checked lately) I think this would have the same effect as actual inflation anyway. International instability. That's the hardest to math in. And it's not just Ukraine. End of QE? Hey that's where most of the great economy has been coming from for 14 years.

I don't know how low it will go. 50% doesn't sound extreme given all the above factors but I know better than to pick the score. It's hard to inflate the economy when you're trying to curb inflation. I don't think we are near a bottom now. Next week might be an up week just on the counter force of last week's blouncing.
 
Last edited:
I wait until the Fed raise the rate the third time, then I will buy value stocks.
 
Montecfo said:
Well I guess the Fed could "address the balance sheet" by saying they will let it run off but I kind of doubt that. Although with the MBS they may have little choice.
Click to expand...

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.

TMW75JOK65PJLIME53VABLVXJY.png
 
You must log in or register to reply here.

Latest posts

Back
Top Bottom