The pageantry is there, with the Dow +300, Nasdaq +130, oil hammered -2.3% and the 10yr bond yield up 4bps to 1.96%. If I was an alien from outer space, I’d surmise your people were idiots — both scared of inflation and wanting of it at the same time.
Oil stocks are hammered, biotech is down, but retail and semis are up. SAAS is up too, but nothing too fantastical. In short, a middling day with milquetoast breadth. Dare I say the market is attempting to pretend inflation is no longer a concern, defeated if you will by the Federal Reeserve who intend to hike rates to their heart’s delight.
I did tell you and I will remind you here, raising rates isn’t necessarily a bad thing for stocks. We have gone through plenty of hikes while at the same time enjoying the benefits of cheap credit. The issue here isn’t hikes or lack thereof, but war gentlemen. Nothing has changed from yesterday to today, other than more military equipment streaming towards the Ukraine border.
Let me remind you, this isn’t Iraq or a sojourn in Panama. If NATO thinks it can retaliate against Russia, and does so, we are going to have a crash test dummy market on our hands. Because of this, I am in a defensive posture and will remain so until the crisis has been resolved.
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Inflation and rates are priced in.
IMO, not even close. Remember, the punch bowl has been full and replenished when necessary for over a decade. It brings to mind the idiom “Lulled into a false sense of security”.
Many stocks peaked 1Q of 2021. Majority of momo names are down 50-80%. Many have completely given back their post Covid gains. A lot of it is priced in.
I agree with war being a major trapdoor event for markets.
But higher rates is also going to lead to lower prices. The entire move in stocks after 2020 was predicated on treasury yields. The market cannot sustain these valuations without low rates. The shockwaves in stock markets starts in September 2020, almost perfectly lined up with the 2y rate move higher. If the 10yr makes a move towards the markets earnings yield for stocks the whole thing is getting flushed lower.
Sorry, September 2021*