The main fear factors
- FED raise rates
- Future earnings recession
- Recession
- War
General market consensus now :
- FED rate hike predicted to end by summer 2023 ( May/June )
- So the market is pricing it in already. ( Stock market is forward looking )
- Pricing in by 2023 summer, stock price will be higher than now.
- Big money leaving - Bank of America say + VIX is lower than its suppose to be at
- VIX - not as high as its suppose to be due to main fear factors : War, FED rate hike, recession, future earnings recession + usual hedging contracts.
- Big money have sold alot, so need lesser option contracts to hedge against their positions.
Thesis :
- Big money have sold enough ? Thats why BofA reported it. ( Big money shunning stocks )
- Analyst / fund manager say market is neutral / good when selling so they can sell at higher price & at bigger volume.
- After selling enough, analyst say it’s going to go down so when it goes down they can claim credit (?)
- Big money have sold enough so not selling anymore / selling at a slower pace
- BUY > SELL = UP … probed up valuation … temporary upward trend ?
Recession fear
- Powell said they are going to do everything in their power to stop inflation in almost every FOMC meeting, most prominently in the July 6th FED minute & many others.
- But now all analyst & media outlet are pin pointing specific word Powell say to point towards the direction of a FED U-turn, I think it might be another event of analyst selling good news while selling their stocks.
- After all , US just experienced a technical recession, although the job market is good. But the FED will take the job market as a soaking sponge to raise rate.
- It is already happening & companies are one by one reporting weak outlook in the coming quarters & laying off workers. We see headlines like Apple, Meta, Walmart etc. But smaller ones are definitely affected. as well.
- If this continues,every quarter we will see company CEO coming out and give weaker & weaker consensus, thus rinse and repeating earnings recession, driving market prices lower.
- So even if FED rate hike indeed stops at where market is pricing it ( 2021 summer), the price level would most likely be lower than where the market is at now.
- This is why I think that institutions giving positive outlook are actually selling their portfolio now. Also remember just a while ago retail buying has been high ( can’t remember the percentage ).
Take away :
- Everything in the market now can be voiced as good & bad very easily. ( perfect opportunity for big money to reduce their positions )
E.g.
Jobs data
- If its a beat :
- Good for economy
- Bad cause FED rate hike sponge
- If its a miss :
- Good cause FED rate hike sponge
- Bad for economy
FOMC
- FED rate hike higher :
- Good for economy long run
- Bad for biz now
- FED rate hike lower :
- Good for biz now
- Bad for economy in the long run
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