As expected, the reality of what the Federal Reserve Chairman has consistently been saying, began to sink in.
It was a fantastic re-run of the FOMC decision when Powell spoke two days ago. The market only wanted to see the comments on dis-inflation, without context, and disregard all other remarks.
Sentiment can only defy gravity for so long however, and it has indeed begun to crumble. We saw very weak attempts at a rally during New York trading, and this is quite unusual given the usual pattern seen over recent weeks.
That change in price action on the day could point to a return of institutional selling of the kind we have not seen so far this year.
The bulls have had it all their way, but as the blizzard of recent Fed actions and commentaries begins to clear, it is the bears that are emerging in view.
Still cloudy, but they are for the first time being seen emerging from their caves of shelter under the hoof of the previously rampaging bulls.
If the bulls are spent, the bears are fresh.
Sentiment, and it has been decidedly bullish, can dominate against fundamental realities for extended periods of time, but inevitably, the longer that duration, the larger the bust at the end of it. We may be at just such a moment.
There is immediate technical support where Stock futures have closed and begin trading in Asia today. This support area has the capacity to generate, what I would think would be one last rally/bounce, but should it let go, there simply may be no bulls left standing to absorb the bear onslaught.
If everyone who wants to buy, particularly on completely erroneous and mistaken beliefs about a pivot, have already done so, then this market is left badly exposed to the downside.
The highs in stock futures, just seen over the past week on hopes that these are close to the last hikes, may endure for a very long time. While some individual stocks will enjoy momentary bounces on the back of staff and cost cutting, in the end it is the reason for these decisions that will dictate stock values.
Layoffs and cost-cutting signal only one thing. These companies see conditions getting much worse before they hopefully at some stage get better. If these companies felt there would be a turnaround within a few months, they would not be cutting staff in such large numbers across all industry sectors now.
US companies are panicking. Maybe market participants should ponder this point a little more, rather than the fairy tale of a Fed pivot.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
