To The Moon

You can find more about me here: https://linktr.ee/kt_fx

Intro

The S&P500 index is down 19% from the all-time-high. Is this the bottom? The market is far from the bottom from a fundamental and technical standpoint.

Layoffs

You see news of companies laying off workers, especially in high-growth and technology industries.

As the YoY inflation rate is still at a high of 8.6%, interest rates are still high, resulting in a high spending costs. As the cost of borrowing increases, the bottom line decreases. By laying off workers, expenses are lowered to cushion the impact of expected lower net profits.

These companies grew too big too fast. Many of these companies thrived during the pandemic with all the stimulus and low-interest rates. Valuations are at a record high for many of these high-growth companies during the peak of the pandemic. Right now, the share prices of these companies are more than 30% away from their all-time highs.

By laying off workers, it will start a downward spiral of consumerism. As interest rates are high, saving rates are higher. This leads to lower spending and lower revenue for businesses. Inflation further decreases the spending power of consumers, which causes profits and ultimately the share price to fall.

Money Supply

There is too much money in the economy. The FED has injected a lot of money into the economy during the pandemic to stimulate the economy. We see a massive spike in the number in 2020, from 4m to around 8m. When there is too much money in the economy, the value of the money decrease.

Previously, $5 could get you a plate of chicken rice. Due to the value of your money decreasing, you can get the same plate of chicken rice for $7. This is also caused by supply chain issues from the war with Russia. With supply decreased, the price of raw materials increases, and these increases in cost will be passed down to consumers, thereby driving prices up further.

The role of the FED is to ensure that the employment rate is kept low and to ensure stable prices. The FED has decided to remove money from the economy to bring prices down. With the massive money inflow over the past few years, I will be looking at the S&P500 pre-covid price level closely as the FED pushes prices down.

https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm

Conclusion

I’m staying out of the market now given that my bias in the market is bearish. I will be waiting for a deeper correction before I start to accumulate my positions. Timing the market is not recommended, but I'm willing to take this risk.

Disclaimer: Do note this article is not a signal to buy or sell and should be treated for entertainment purposes only. I was probably drunk when writing this article. Please do your own due diligence when investing. This is NOT financial advice.