The week starts with a heavy atmosphere following further selling in New York on Friday.
There was not a lot of major news, but in the back of every traders’ mind was the thought that this whole ‘high inflation/Fed hiking’ scenario, may not actually be over as soon as many hoped.
As we have highlighted for the past several days the institutional sellers have returned to the game. Really for the first time this year. Discussions at senior board levels of the biggest corporations of America are very much focussed on the idea that we would like this slow-down to be short lived, but if inflation and employment data continue to force the Fed’s hand.
The troubles may be far from over. Caution, preparedness, and defence, are now the only viable course of action for any responsible company board in the USA.
This will feed back into the thinking of many a major fund manager who had gotten ahead of themselves in seeing ‘across the valley’, who may now need to reconsider their positioning.
False illusions of pivots and Nirvana recoveries are now all but dashed. Excepting the die-hard cult storytellers of ‘the market always goes up anyway’.
This could be a several-year duration period of sideways to downward heavy stock trading price action. The US economy has extreme distortions that will take many years to work through.
Those that think the US economy is strong are mere snake-oil salespeople for political or raising funds purposes. The only apparently good data is employment. There is no other. And even that fails to take into account the 2.6 million workers who simply vanished through Covid.
Markets do not move in straight lines. This is the fun of it all of course. Today could see an attempt by stocks to rally, and so too for some currencies like the Euro and Australian dollar.
This does nothing to take away the fact that from a big-picture perspective, stocks had priced a ‘pivot’, that just isn’t going to happen. Leaving many traders and investors badly exposed to the reality of another 4-8 Federal Reserve rate hikes still to come.
Any movement below Friday’s lows seen in US trading would break the back of the strong consolidation range of recent weeks. The potential energy to the downside in such an eventuality would be extreme, and all should keep a watchful eye for such an attack by the bears.
They are out there and massing.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
