Note to Readers: We believe a near-term bounce is potentially brewing in markets within the coming weeks in the markets within the context of a larger decline. Markets don’t move in straight lines, and upon further weakness, a counter-trend rally may re-appear (for however long, we do not know). Investors who wish to be tactical can choose to participate, or continue staying conservative. Please do not mistake any bounce for a structural recovery. Our confidence that the market stays soft from a longer-term structural standpoint remains high. Playing defense continues to be the theme, and we plan to keep doing that inside our Community until the time is right to add equity exposure.
Please exercise extreme caution as Fixed Income as an asset class now greatly competes for investor capital away from equities and real estate. Inside our Community, we discuss opportunities within Fixed Income, and how to park capital strategically in this environment.
If you haven’t yet already, make sure to read Strategist Larry’s latest note on perspective released yesterday. We are surviving this Bear Market with grace, and hope you will join us.
Seasonality data back to 1928 show that the last ten days of the month tend to be weaker than the first ten days of the month for every month except for December. September is the only month with negative average and median returns over the first and last ten sessions of the month.
The last ten sessions of September are very bearish and begin on 9/19. The SPX is up only 40% of the time over this period on average and median returns of -1.04% and -0.59%, respectively.
Source: Bank of America
Macro Chart In Focus
Analyst Team Note:
Central banks around the world are hiking rates more than ever. About 90 central banks have raised interest rates this year, and half of them have hiked by at least 75 basis points in one shot. But at what cost?
Rate hikes don’t have an immediate impact on the economy. So when you add to the mix rate hike lag, supply-side shocks, and energy crisis, central banks are just shooting in the dark hoping for a soft landing.
The market is currently pricing a 4.50-4.75 terminal federal funds rate and a 75 basis point hike this Wednesday. According to Investopedia, it can take 18 months before there is any effect from rate hikes/cuts. This inability by the Fed to fine-tune the economy is exactly why many tightening cycles in history have been followed by a recession or depression.
With headlines from the WSJ like “Jerome Powell’s Inflation Whisperer: Paul Volcker”, we are expecting the Fed to accept a recession as the price of fighting inflation.
Chart That Caught Our Eye
Analyst Team Note:
“Months of housing supply has rarely increased as quickly as it has over the past six months. While we have a limited sample size of this kind of volatility, the size of this increase is normally associated with falling home prices 12 months forward.”
We want to take a moment to thank Interactive Brokers for being one of our Channel’s trusted Partners and to inform my audience of the special features they have given that our online friends here closely follow Chinese Internet stocks (BABA/Tencent).
Much of Larry’s audience is concerned about the US ADR issue of Chinese Stocks being delisted.
