The US stock market was up these past days, then, on a slightly upward trending August CPI report indicating +0.1% month over month (core CPI, which sets aside food and energy prices, is up 0.6% month over month, so of course inflation worries are warranted, but that was old news already), it went down 3+% and the Fed Watchers, who were previously betting on 91% of a 0.75% FED rate increase (with 9% of 0.5%) next meeting are now pricing in an 18% chance of a +1% FED rate increase.
I mean, how do you go from “inflation has peaked, yolo!” to “well, duh!” in so short a time and who are the people with the money to loose on those bets? It really seems like many market participants have real trouble coming to terms with living in less than euphoric times. There’s the potential for a lot of pain ahead…
Very true. I can’t even imagine the blood spilt by guys invested in leveraged ETFs right now, e.g. Hedgefundie’s adventure (HFEA). UPRO/TMF have been beaten brutally. The hedge for stocks (UPRO) was supposed to be bonds (TMF), but that didn’t work to well this year I fear
Unless stocks or long term treasuries loose 33% in one day, the leveraged ETFs should survive the downturn and resume going up with time when the markets recover. If they’re investing for the long term and have properly assessed their risk tolerance, I wouldn’t worry too much for those investors (which isn’t to say they’ll beat a diversified unleveraged portfolio, volatility decay is a real thing).
The situation in which I really wouldn’t want to be right now is with callable leverage. Outsized margin loans, options, futures,… provided the bets are made in the wrong direction. Outsized leverage can take out our agency when the underlyings face too much volatility.
The yearly intraday minimum on the dividend adjusted plot of VT in CHF was on 17.06, afterwards there were two dividend distributions. That’s why the plot of VT closing price in CHF without dividend adjustment shows the yearly minimum today . But yeah, I agree that it is not convenient and I am looking for a better benchmark, which most probably is going to be MSCI ACWI IMI Net total Return in CHF.
The stocks fell not because of the expected 0.75% rate hike, but because future projections have changed. Now Fed signals 1.25% more this year and the maximum at 4.6%. That’s what is moving the market: not the current situation, but what is expected in next 1-1.5 years approximately. If projections change to less tight conditions, markets will rally no matter current inflation and recession.
Same story here, I did the mistake of not buying during the Pandemic Sale, and now I’m not repeating the same mistake again. Although, I’m stressed and nervous as hell.
Definitely hope there’ll be some panic soon, so far we’ve only reached pre-pandemic heights, that’s rather disappointing Wonder what’s still missing for panic sellers: we’ve got a bear market, recession fears, war, inflation, supply shortages, high energy/oil prices, rising rates…
I’d put my bet on earnings compression (somewhat happening), layoffs and/or bankruptcies. We may be getting there but the rebounce could also be quick. We’ll have to see.
The US market has been very delusional this far and especially in June-August, when it went for a somewhat consequent rally upon news of a second quarter of negative real GDP. The Fed seems to be following a 1965-82 model where slowing rate increases as inflation slows only goes to allow a new spike a few years later, which they don’t want to allow. They are also willing to crush the real estate market.
This seems to be only starting to sink in, as we head into winter with energy prices that had cooled down bound to raise somewhat again. I’m not confident the S&P 500 is the place to be in in the coming months and wouldn’t change my game plan without a huge amount of confidence behind my bet.
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. But yeah, I agree that it is not convenient and I am looking for a better benchmark, which most probably is going to be MSCI ACWI IMI Net total Return in CHF.