To The Moon

The market has been falling substantially in the recent few days with the SPY falling below June's low for a few hours on friday's hours.

There are 4 main reasons for this : 

1) Investors repricing the FOMC statement.‌

Powell stated 3 main fear points from CNBC :

First being 'FED will plan for the worst and won't use lagged impact of shelter cost' this statement made people fearful of what the FED will do next as the FED is becoming more and more hawkish.

Second being 'no one knows wether this process (hike rate) will lead to a recession, or is so how significant that recession would be' which obvoiusly makes the market fearful of multiple disasterous earning quarters.

Third being 'we are still discovering what that level (final rate) is', this made the market fearful that the FED fund rates projection of 4.4% by the end of 2022 might just be the base line for the FED to later increase on like they have did for every single past FOMC.

2) Treasury yields

Bond prices have decreased substantially as well due to FOMC. This caused bond yield increased, especially the 2 year to a peak of 4.1% which incentivises investors to pull money out of other asset classes and put it into bonds to earn that garenteed 4.1% instead of risking it in the stock market with double digit negative returns.

3) Goldman Sachs & others

Goldman Sachs cut thier SP500 2022 target by 16% to 3600 point. Morgan Stanley suggest that the 'reality' has not been priced in yet. And Bank of America restating thier month's long bear thesis. Among many others.

4) Ray Dalio's statement‌

Ray Dalio stated that the economy is showing all of the classic early signs of a recession which includes the 10year and 2year inverting not only once but multiple times. He also stated that the FED will keep fighting inflation until the economic pain is too big of a tradeoff. This send waves of fear among investors as Powell have also hinted that the US economy will go into a recession and he is just getting more and more bearish every time.

Summary ‌

FED is becoming more and more bearish everytime which means there is no clear point of when the FED will slow down which brings down the whole Cathy wood FED pivot narative. 

My take

I am currently shorting and have been shorting the market since the week before JHS because I believe that the market will only have a real and meningful rally when the FED comes out and say they will stop hiking rates which could be well into 2023, this is because of Biden administration using up the crude oil reserve for political reasons to push down oil price and CPI and the FED knows this. I also believe that the real pain will only come after November 8, but obviously, datas won't reflect immeidiatly which is why the FED have stated that they will be 'plan for the worst' and won't take into account 'lagging impacts'. Again, i believe that the market knows what i know about November 8 mid term as well, but from what i can see now, it is not priced in yet because it is only briefly mentioned due to its political nature.

And also, ask yourself, did the economy and FED and inflation and all the other factors become better than June's low ? If no, then it means that the market should be below June's low based on fundamentals alone, and after pricing in things like negative momentum etc, the market should be well below June's low, hence why Morgan Stanley said the 'reality' has not been priced in yet.