$720 bln Evaporated in a Day! Why is that? How will market move?
On Tuesday, the US stock market wiped out $720 billion, which experienced one of the worst trading days since 2023. Growth stocks was hit hard with the outperformers turing to be the biggest loser.
Asof the close, the $DJIA(.DJI)$ fell 2%, or 697.1 points, giving back all the gains made so far this year; the $NASDAQ(.IXIC)$ fell 2.5%, or 294.97 points; the $S&P 500(.SPX)$ fell more than 2%, and almost all categories were lower.
data and chart from Fintwit
One of the key reasons for the historical drop is that the market expectation for rate hikes changed.
The worst scenario: 50bps in March and no rate cut in 2023?
1) Fed officials showed support for 50 bps in March meeting.
Cleveland Fed President Loretta Mester said Thursday
she saw a “compelling economic case” for a 50 basis-point interest-rate hike at the Fed’s Jan. 31-Feb. 1 meeting
St. Louis Fed chief James Bullard said
he wanted to bring the Fed’s policy rate up to 5.375% as soon as possible, and said he would not rule out supporting a half-percentage-point interest-rate hike at the Fed’s March meeting.
data from cme group; 80% expects 25bps in March
2) In addition to the March decision, Goldman Sachs also altered the rate cut estimates.
Goldman Sachs' chief economist Jan Hatzius said that
the central bank will raise benchmark rates above 5% this year and then hold them at that level until 2024. We don't expect cuts in the funds rate until well into 2024 in our baseline forecast.
How will market move later? A pullback starts?
1) Bearish
Morgan Stanley’s Mike Wilson warned that
The stock market entered the“death zone,” with valuations hard to justify based on the outlook for earnings.
Stock market could possibly fall more than 20% and see the the $S&P 500(.SPX)$ trade in a range of 3,000 to 3,300, and was in for “at least a retest of the October lows.”
The S&P 500 closed at 3,583 on Oct. 14, or 12.2% below its Friday close.
2) Bullish
History data shows that investors can do reasonably well in March.
According to data from Yardeni Research, which looked into returns dating back to 1928, the S&P 500 on average rises 0.5% in the month.
Stocks have gone up 57 times in March during that time frame and have fallen 37 times.
How do you view the $720 bln losses?
A pullback starts or not?
Do you have hedging strategies to protect your portfolio?
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It will not be surprising for slightly larger rate hikes and higher terminal rates since the overall labour market remains strong.
I don’t have a hedging strategy in mind. Instead, continue to focus on building a diversified portfolio including those that will thrive or survive in a high interest rate environment.
Would definitely avoid companies that are not profitable, and also speculative stocks that will be under immese pressure from the elevated interest rates.
Don’t panic sell as long as you are holding onto fundamentally strong companies. Look for the next price level to DCA or enter the next good bargains.
🌟🌟🌟：昨天一天之内7200亿美元化为乌有，真是一片灰暗！但这就是投资的本质。要做的事情不是恐慌性抛售，而是保持冷静的态度，安然度过难关。为此，我投资于优质股票和普通ETF的多元化投资组合，并具有长期视野。
高通胀是罪魁祸首，鹰派美联储打算通过提高利率将通胀率降至2%。这不是一门精确的科学，市场担心，如果联邦政府行动太快或太远，可能会使经济陷入衰退。
看起来熊市又回来了，一个好的策略是买入$纳指三倍做空ETF(SQQQ)$ .SQQQ在过去5天里上涨了11%。随着投资者做空科技股，SQQQ流入量飙升。
波动性将会持续，无论市场走向何方，我感到欣慰的是，市场中的时间才是最重要的，而不是把握市场时机。
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Just remember, eventually the waiting will pay off! [smile]
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Based on technical analysis, we are actually having correction after almost nearly two quarters of rebound waves.
To me its healthy correction
A pullback will starts if Nasdaq index fall below 11500
Hedging strategy is to invest some in inflation resistance stock like Waste Management