A rally in a Bear Market or has everything changed (again)?

A rally in a Bear Market or has everything changed (again)?

When you look at last Friday’s session, you say to yourself that it’s still spectacular and that it’s still great when it goes up so easily, especially when you know that absolutely nothing has changed. Whether it is from an inflation point of view, whether it is from an economic point of view or whether it is from a geopolitical point of view. Except that last Friday we found a way to tell ourselves that IF THE FED raised rates again in July and inflation started to calm down, MAYBE the FED would give up raising rates in the fall. and that finally, we could have a rather nice end of the year. That’s a lot of conditionals, I understand.

The Audio of June 27, 2022

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Always a question of interpretation

Over the week, the Dow, S&P 500 and Nasdaq rose 5.4%, 6.45% and 7.5% respectively. It must be said that when Powell told Congress that he would “monitor whether economic growth and inflation were slowing down, in which case the pace of rate hikes would slow”, will have greatly helped the market to “hope” again. Nothing is written in stone, but between the end of the semester which is approaching, the “adjustments of positions” which will be made on this occasion and the fact that we were SO LOW will have given the necessary energy to the market to rebound violently last Friday and leave doubt in the minds of investors.

No, because you still have to know how to keep reason. First of all, assuming we went up because Powell COULD reduce the pace of the rate hike IF things calm down on the economic side and on the inflation side, we’re still to take a bet on “not much”, but which is nevertheless based on an unstoppable logic. Indeed, Powell’s passion in life is unlikely to be to drive up rates to put the economy into recession. In a logical and rational world, it seems like it seems quite logical that his intention is to maneuver as delicately as possible to generate enough growth so that the economy does not go into recession, while not letting the economy go. in an uncontrollable inflationary delirium. Already right now, it’s not bad…

Not our enemy

We are therefore realizing that Powell is not the enemy of finance and that he must do what must be done so that everything does not go into a spin and it gets out of control. Friday’s rebound can therefore be associated with the fact that we are thinking that “maybe the FED is not our enemy” and that if they do their job well, we could have good surprises in the future. It therefore remains to be seen if we triggered something concrete last Friday or if it is “once again” just a rally in a Bear Market. We know that in bear cycles, it is always extremely common to experience this kind of very short rebound phase, because we want to believe in it. We want to convince ourselves that the worst is behind us and above all, we don’t want to miss the train of the next Bull Market which will take the S&P500 to 6,000.

Except we don’t know. As per usual. Finance is like the weather – it’s not an exact science. Except that for 50 years, the weather forecast has made mountains of progress and increased its precision from 50% of acuity to almost 85%. In finance, we are always 50/50. And unless you are better informed than the others, it is more complicated to exceed the 60% success rate. However, since Friday, the tone of the financial media has clearly changed. Whereas 5 days ago we wondered what were the probabilities of falling into recession. Probabilities that we will qualify as HUGE if we are to believe all the gaggle of gurus, analysts and strategists who have appeared on CNBC, in the Wall Street Journal or even in PurePeople.com or on TikTok with the latest fashionable finance influencer; there is a good, even a very good chance that it will take a miracle to avoid recession.

Except that since Friday’s rally and – based on the fact that futures are up this morning – we’re almost telling ourselves that it’s better to be careful and not miss the boat. We never know. And then if we goure, we can always say that we sold at the top of the rebound and that we left short behind. Anyway, no one will come to check what you have done, the important thing is to shine and show others that WE did it right. The stock market is so easy, after all.

Asia in the wake

This morning is the village party in Asia. The Nikkei is up more than 1%, just like China and it is Hong Kong that takes the crown with an increase of more than 2.3%. We are fully in the wake of Wall Street and everyone is saying that if “by pure chance”, we were entitled to a rebound of 7 to 10%, as certain media and other gurus relay it already, it would still be stupid to miss it. One thing is certain, we have a crazy ability to turn the jacket at the first opportunity and to want to be easily convinced that the worst is behind us. That’s what scares me and what would tend to make me say that it’s not over yet.

If the investment cycle is to be believed, the panic button has been pushed a few times lately, but investors haven’t given up yet and still want to believe that tomorrow will be better. When these hopes and beliefs have been definitively cleared, then maybe we can jump into the deep end. But there right now, I have the feeling that it is perhaps still necessary to keep a little right. But hey, we’re going to follow this gently but surely and see if we are able to maintain our “bullish positioning” for more than 24 hours without coming back tomorrow screaming at death because there is an economic figure which shows that the inflation has not abated. To sum it all up, I came across a phrase in an article this morning. This sentence comes from an analyst like there are hundreds in American investment banks and the guy said the following thing:

“Right now, any bad economic news could be positive for the equity market, because it would mean the FED might have to reduce the pace of its rate hike.”

If we are reduced to hoping for rotten news so that things go well, I still have doubts about the fact that we have all the cups on the same tablard.

News of the day

In today’s news we will first note that oil is at $107 and that the Bank of America strategist thinks the barrel can go to $75 or $150. At $75 if we enter a recession or at $150 if European sanctions hurt Russia’s exports. Which seems about as likely as me to win the Euromillions this weekend, especially considering I’m not playing. So here it is, oil, which was a “sure hit” at $150 just a week ago, is becoming a big crap that no one wants if we enter a recession. It should be noted in passing that several European countries are in the process of restarting their coal-fired power stations – in a strategy that is thoroughly ecological and non-polluting – a bit like the World Cup in Qatar in air-conditioned stadiums. We can clearly see that the sanctions against Russia are working very well. Especially against…NOT Russia.

Otherwise, gold is at $1837 – pending new G7 sanctions against Russian gold which are expected to drop on Tuesday according to secret information from knowledgeable people who prefer to remain anonymous. Bitcoin freezes at $21,000 and Elon Musk lays people off at Tesla, while all fired employees take to Twitter to say he’s been mean to them and methods of firing aren’t very ” fair”. Besides, Musk still hasn’t bought Twitter. Fair or not fair. For the rest, we are talking about the fact that the end of the semester could cause waves of purchases on the markets. Or not. And that the first clues on the quarterly figures will start to appear this week. Among others, there will be Nike today and Bed, Bath and Beyond on Wednesday. Beware of the disappointments and predictions about the future that will be communicated. It should also be noted that the US real estate market is still slowing down and that does not bode well. Unless we have bad economic news that gives hope that the FED will lower rates. Hope is beautiful.

The numbers of the day

Today, there will be the number of unemployed in France, Elisabeth Borne will not be part of it since the King of France confirmed her in her functions. And then in the USA; we will have the “Pending Homes Sales” which will be published. For now, futures are eroding the lead they had early this morning. We will see if the rebound is solid and if we can believe it a little more than 25 minutes.

Until then, all I have to do is wish you a very good Monday and a great start to the week, we’ll see you tomorrow!

Thomas Veillet

“It takes courage to grow up and turn out to be who you really are.”

– E. E. Cummings

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