Volatility – a statistical measure of how quickly a market moves/periods of unpredictable movements.
Stagflation – inflation rising + economic growth slowing.
Stablecoin – a cryptocurrency that is designed to be pegged to another crypto, currency or commodity.
Three key terms have been the dominant themes in markets this month and look set to continue in the month ahead. Let’s get to it!
Macros remain unpleasant
The Bank of America fund managers survey is always a great way to understand market sentiment. The latest survey makes this dismal macro landscape quite clear, and made for some rather grim reading – global growth optimism hitting an all-time low, stagflation fears hitting their highest since 2008, cash levels rising to the highest since 9/11, with hawkish central banks and a recession sitting as the two largest tail risks.
Sell the rip
Bear market rallies can be ferocious beasts. Such was the case yesterday, with equities gaining strongly, as the S&P vaulted above the 4,000 handles, aided by both somewhat over-exuberant sentiment, in addition to options-related hedging ahead of Friday’s expiries.
I don’t think recent gains are likely to be particularly durable. The macro backdrop remains dismal and is in fact worsening as China continues to pursue a zero-covid policy, while another bout of supply chain disruption is rapidly making its way towards the western world.
Bear market rallies can be violent, and fool investors into thinking that the downtrend is over, as we saw in 2000, and in the GFC. The idea that the downtrend is over doesn’t appear true at present, as the aforementioned survey notes, with investors still expecting rate hikes rather than rate cuts, “stocks are prone to a bear rally, but ultimate lows not yet reached”.
The above SPX chart shows a few of the recent rallies which have been jumped on by sellers, with this week’s selling on Wednesday causing the largest % down day since June 2020. More red on this chart looks inevitable.
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