And oh what a week it’s been. Let’s go back to last week for a minute. Last Tuesday the market capped off a blistering to week run, by having the S&P run “smack dab” into its 200 day moving average. Now a lot of people will tell you that the 50 and 200 day moving averages don’t carry as much weight as they used to, but they still carry some clout.
When the S&P hit that 200 day, that whole two week climb came to a screeching halt and we started heading down a bit, but nothing major. Until Friday. Friday the wheels fell off and we plunged. That carried into Monday of this week as the market puked for another big drop. Tuesday and Wednesday the market sort of “ran in place” trying to figure out if they had over reacted on the big sell down.
Meanwhile over in Wyoming at the Jackson Hole economic meeting, all the movers and shakers were talking about the economy, inflation, and interest rates. Despite several fed heads telling folks that they think rates must go higher, most of the talking heads began to tell folks that it seemed the Fed might only do a 50 basis point hike at its next meeting. (Hogwash, you’ll see why)
Hi all. Despite being tied up running my wife’s Agency while she visits her dad and brother ( and extended family, I think she’s got like 30 first cousins!) I’ve been able to keep at least one eye on the markets during the week.
And oh what a week it’s been. Let’s go back to last week for a minute. Last Tuesday the market capped off a blistering to week run, by having the S&P run “smack dab” into its 200 day moving average. Now a lot of people will tell you that the 50 and 200 day moving averages don’t carry as much weight as they used to, but they still carry some clout.
When the S&P hit that 200 day, that whole two week climb came to a screeching halt and we started heading down a bit, but nothing major. Until Friday. Friday the wheels fell off and we plunged. That carried into Monday of this week as the market puked for another big drop. Tuesday and Wednesday the market sort of “ran in place” trying to figure out if they had over reacted on the big sell down.
Meanwhile over in Wyoming at the Jackson Hole economic meeting, all the movers and shakers were talking about the economy, inflation, and interest rates. Despite several fed heads telling folks that they think rates must go higher, most of the talking heads began to tell folks that it seemed the Fed might only do a 50 basis point hike at its next meeting. (Hogwash, you’ll see why)
So on Thursday they were all confident that when Fed head J. Powell was going to talk on Friday, he was going to be all kinds of mellowed out and Dovish and talk about pausing rates and all other manner of bunk. We saw them put in a big green day, with the DOW recapturing over 300 of the points it lost.
But I was beyond skeptical. Why? I've said for months, that Powell isn't going to back down. They're going to drive rates to about 3.75 - 4.00 percent and that's going to hit this economy like a ton of bricks. If the overnight levels are at 4, the Mortgage rates are going to be over 6. How many 500K houses are going to sell at 6.3%? How many 70K dollar trucks are going to sell at rates like that?
I’ve said over and over, “it’s different this time” and oh boy, is it ever. See, for decades the Fed’s would hike rates to slow the economy and as soon as it started to bother the equity and bond market, they’d quickly reverse their stance and “pivot” to cutting rates. But my position has been much different. I’ve said over and over that Powell is not going to cave to the market. Why? A couple of reasons.
One is that all the inflation we’re seeing has been on his watch. He’s not going to want history to look at him as the Fed head that couldn’t contain 9% inflation. Second, the world is a different place now. The blowhard idiots in Brussels that want to rule the world, don’t care if your 401K gets blown up. They’d enjoy that. They consider you nothing but worthless eaters that need to be penned up. (and fed bugs)
So, when Powell took the stage, what was his message?
Higher for longer. That's the message Powell gave us. "another outsized increase might be necessary" and a host of other hawkish statements.
I find it interesting that all week the talking heads were spewing that he was going to backtrack and be dovish. Instead, he said flat out "there will be pain in households" and that doesn't sound dovish to me.
At first the market puked, with the DOW dumping 250 points, but then the algo's kicked in and up we went. Ten minutes later, we were almost green with the DOW off just 35 and the S&P down just 7.
How's that work? The story they were telling on TV, was that they were afraid he’d mention even more rate hikes and he didn't say anything to make them believe he'd do more than one more 75 basis point hike. So they bought up the market.
It never stops.
By 10:30 the reality started to hit them. The DOW plunged 320 points into the red. The S&P fell from down 7 on its bounce to down 48. Ooops. But there was more. Three minutes later, DOW -378, S&P -58.
Few minutes later, DOW - 420. It just kept falling. I think I saw -650 by 1:30 pm.
The market doesn't quite know what to think of all this. For years untold the Feds would hike rates until the market whined too loud and they'd quickly "pivot" back to cutting. Not this time homies. He's going to take rates to 4% and they're going to sit there. NO pivot back down.
I think that’s the punch that sent them to the canvas. In all other Fed cycles, they’d hike, and hike, and then just two months after another rate hike, they’d CUT rates and keep cutting. Not this time. He’s going to get rates to where he’s really starting to hurt demand, and he’s going to LEAVE them there for quite some time.
So, what’s it all mean? September is often the worst month of the year. More major crashes happen in September than in October. The S&P is still under its 200 day, and has to face rising rates. The Atlanta fed is just a smidge away from forcasting that the 3rd quarter GDP will also be negative.
This doesn't look good for the bulls. My guess is that September is going to bring the market some pain, and we could , repeat COULD, go all the way down and “test” the summer lows. We might not, but we could, or if not all of that, at least some really lousy volatility.
The very end of the year is generally good for stock markets. From Mid November through Christmas, we usually see strong gains. But we need to get past September and October first. My guess is that we’re in for a bumpy ride folks. Hold on tight.