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Recent Market Moves ‘Could Be Self-Defeating,’ Goldman Says
The rebound on Wall Street dodged a bullet Friday, when stocks managed to avoid losses despite a job
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The Fomc is charged with balancing employment and inflation, and providing a stable banking system through regulation and other policies. Employment is good, maybe more than good, banking is stable except for crypto-hah, and inflation is too high. So they are raising rates and engaging in qt. The rest of the analysis is important but it often looks like naval gazing.
I believe that those who run money are historically offside from the market this year, badly positioned vis a vis their benchmarks. At year end, they will be judged on that performance and their year end bonuses, which usually represent a very large percentage of their annual compensation, may suffer considerably as a result. Traders, knowing this, have been bullying them into buying to keep up with the market, on every possible glimmer of good news, since the massive reversal day, Oct. 13, that started this rally. Sometimes, like with Powell’s speech, the glimmer is questionable at best. But the traders use it as a plausible trigger anyway and start buying, the shorts start covering and that sudden, unexpected stab higher forces the money managers to start buying, hating it all the while, but afraid of increasing their underperformance, if they don’t jump aboard.
If Powell is chill about the rally, perhaps he suspects it will come to a sudden halt with the end of the year. Certainly, I will be raising cash into year end, as that driver of this rally disappears. I suspect a much better buying opportunity this spring when we make a lower low.
I don’t think Powell was throwing the markets a bone this week, but actually may have managed a rare needle threading. He leaned hawkish, in service of the systemic risks he sees gathering (illiquidity) and perhaps as a reminder to the quant crews that their NIRP and ZIRP-based models are not likely coming back into vogue anytime soon, while also not freaking out the market with hard-landing or bust concerns on talks of higher than anticipated terminal rates for longer.
And as H has said, it seems only a matter of time until one of the maddeningly fluctuating data releases does Powell’s dirty work for him without him changing a thing. But the market is so frothy to front run a Fed pivot or China reopening, that any combo of spiky employment, spiky inflation or spiky Covid is likely to be just as good as another 75 bp hike in terms of FCI.