The Fed isn’t going to change its tune any time soon.
The latest statistics and the latest “Fed Talk” show that the Fed is sticking to its guns.
The Fed doesn’t seem interested in talking about a change until mid-2023.
Investors, do you hear that?
However, the stock market is still hesitating.
Let’s take a look at the data.
The Fed started its tightening program in mid-March 2022. More specifically, the Fed changed its policy at the Federal Open Market Committee meeting on March 15 and March 16.
From that point on, the Federal Reserve maintained its focus and did not give up its efforts to reduce the inflation rate in the United States.
Stock market investors keep trying to find another narrative, one that suggests the Fed should “deviate” from its focus on monetary tightening, but so far, at the end of the effort, the Fed is still holding on. plan.
As a result of this behavior, the “trend” in the stock market is going down. It is the investor’s actions in response to the different narratives that are going around that volatility.
This is what we see when we look at stock numbers since mid-March.
Investors are finding plenty of other stories about where the economy and the markets will go.
For example, we read in the Wall Street Journal:
“A slowdown in inflation ripped stocks higher last week, denting dollar and bond yields.”
Last week, the S&P ended its best stretch since the summer.
Moreover, strong labor market and retail sales data “suggest that the economy has a way to go before higher borrowing costs cause the kind of contraction that could prompt the Fed to reverse course.”
But, “U.S. existing home sales fell for the ninth consecutive month in October….”
It seems that there is no clear picture of what is happening in the economy.
The next story people are talking about is the new outlook for corporate earnings. This is expected to be rolled out in the next couple of months.
Uncertainty obscures the picture and the investment community still believes the Fed will “roll back” on its tightening monetary policy as fears of a market crash or other turmoil set in.
Unfortunately, analysts seem to have a view that Mr. Jerome Powell, Chairman of the Federal Reserve, and the rest of the Board of Governors. They are especially sensitive to being part of a disaster.
All through 2000 and 2001, Powell and the Fed made sure that they were always wrong on the side of monetary ease. They do not want to be held accountable for any crisis.
Thus, the sentiment is that Mr. Powell and the Fed, being so sensitive to financial drama, will “pivot” sooner rather than later.
But, as I see it, there are two real clouds on the horizon.
The first is that the yield curve in the Treasury market has been negative for a fairly long time now.
The Treasury yield curve turned negative for the first time this year in early July. It has continued to become more negative as we move into fall and November.
Almost always the US is in a recession, sometime soon after the yield curve becomes negative.
The bet on economic recession increased as the yield curve became more negative and extended with a negative slope.
A future recession is real, again the issue is about the timing and magnitude of the next recession.
A second cloud over the upcoming future is coming from the cryptocurrency market.
The bankruptcy of FTX and the stories that have come to light about how this organization, which has grown in market capitalization to $32 billion, has succeeded is causing concern for the entire cryptocurrency world, a path world to its great success during the federal period. The Reserve was injecting billions and billions of dollars into the financial community.
What will happen to the cryptocurrency market in the next six to twelve months?
If you want to get a little nervous, take a look at what happened to the bitcoin price over the past 12 months.
The pressure is on the price to drop further, but no one knows what might happen when the government and regulators get their hands on the bitcoin world.
For me, the Fed still dominates the markets.
My view of the Fed now?
The Fed will continue to follow the path of monetary tightening that began in March.
Stock prices.. go down!