— When has being a seller into a well-anticipated event with negative implications for the market ever made any sense?
— We have had 42 days full of hand-wringing and negative media to contemplate the July 27 Fed meeting … a for me the market has priced this in.
— After all the higher rates, inflation, recession talk and extremely negative market sentiment the S&P 500, NASDAQ and the Dow all closed higher today than their June 15 close.
— This begs the question from most who are by this point scratching their heads … What’s going on?
Selling Into a Well-Anticipated Event
In my experience and from those who mentored me the stock market has always been a discounting mechanism, forward-looking, weighing all the information available today and pricing that information into stock prices six to twelve months out. Information, like the Fed will raise the Fed funds rate 75 to 100 basis points tomorrow, is already in the price. If that is the case why would you sell stocks into that well-anticipated event? For example, five trading sessions before the June 15 rate increase the market declined. On the 15th, after the announcement the S&P 500 rallied 1.5%, closing up for the first time in 5 days. Based on continuing experience it seems to me that this is a concept is lost to the computerized, algorithmic traders, most of the pundits urging caution and a large segment of the general public.
42 Days of Handwringing
We have had 42 days since June 15 for the market to price in all the negatives … 42 days of constant media hammering on tomorrow being a huge deal, a potentially very negative event. Yet last Friday and today (7/26) the market declined … a selloff in anticipation of this well-discounted event. Today’s action was pretty typical. Not much was safe save the 10-year US Treasury note, which in a flight to safety trade traded up in price and down in yield from thursday’s high over 3% to today’s low yield of 2.79%. The leaders of yesteryear exemplified by Cathie Wood’s ARKK, lost 11% in the past two days. Oil and oil stocks got hit (recession fear) even though natural gas was trading at a 14 year high ($8.99/MCF). Banks were under pressure too. This might relate to recession fear and the impact on credit quality. All of this is in my opinion preemptive sales to avoid a weak market that might develop as a result of today’s interest rate moves. It looks like the current tightening is beginning to have real effects on certain segments of the economy … housing for instance. What if the Fed says this is it for a while that they are going to see what effect the latest move has on the numbers going forward. My sense is that is a major risk for those sitting on the sidelines waiting for a retest or new lows.
Jun 15, Postscript
After all the higher rates, inflation, recession talk and extremely negative market sentiment the S&P 500, NASDAQ and DJII all closed higher today than their June 15, closes. During the 42 day period the S&P, NASDAQ and DJII were up 3.45%, 4.1% and 3.56% respectively. Based on the rhetoric who would have imagined this outcome?
What is going on?
Maybe the sellers are exhausted. Or maybe the market is doing its usual thing, gazing down the road and forecasting better times 12 to 18 months from now. While the market is doing its thing the media and pundits are doing theirs.
“S&P 500 closes flat Monday as traders brace for big earnings, Fed decision later this week”(old news) (CNBC)
Time to buy not sell!
What’s your take?
The information presented in kortsessions.com represents my own opinions and does not contain recommendations for any particular investment or securities. I may, from time to time, mention certain securities for illustrative purpose, names where I personally hold positions. These are not meant to be construed as recommendations to BUY or SELL. All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.