I called Jay Powell’s bluff a week ago. Remember when he said last week that we’re still far from The Fed’s inflation targets?
Well, I was right to doubt him. The market didn’t like his change in tone Thursday (Mar. 5).
You see, when bond yields are rising as fast as they have, and Powell is maintaining that Fed policy won’t change while admitting that inflation may ” return temporarily ,” how are investors supposed to react? On the surface, this may not sound like a big deal. But there are six things to consider here:
It’s a significant backtrack from saying that inflation isn’t a concern. By admitting that inflation “could” return temporarily, that’s giving credence to the fact that it’s inevitable.
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Matthew Levy writes: In keeping with last week’s theme, the market has mainly traded sideways this week. However, that correction I’ve been calling for weeks? We have potentially started.
While I don’t foresee a crash like we saw last March and feel that the wheels are in motion for a healthy 2021, I still maintain that some correction before the end of Q1 could happen. Bank of America also echoed this statement and said last week that “We expect a buyable 5-10% Q1 correction as the big ‘unknowns’ coincide with exuberant positioning, record equity supply, and as good as it gets’ earnings revisions.”
by Matthew Levy, CFA
It’s officially “stonk season” in the markets. The IPO market continues to baffle, and SPACs continue to pop-up like weeds in your front yard.
Plus if you’ve seen GameStop (GME), AMC Entertainment (AMC), and Blackberry (BB) lately, you know the Robinhooders are at it again.
These speculative gambles are ridiculously frothy right now as hedge funds and institutions continue to try and cover their shorts. The moves these stocks are making are more detached from reality than the guy in a buffalo headdress at the Capitol 3 weeks ago.
Complacency is the most significant near-term risk to stocks by far, and I have been warning about this for weeks. It also reminds me of the Q4 2018 pullback ( read my story here ).
by Matthew Levy, CFA
This market continues trudging forward and weighing good news with bad. After stocks closed last week with their first weekly declines in nearly a month, stocks staged a mild recovery on Tuesday (Jan. 19th) led by tech, big banks, and small-caps.
Today’s gains were primarily thanks to renewed stimulus hopes, faster vaccine distributions, and strong bank earnings. However, this is far from an “all clear.”
It still reminds me of the Q4 2018 pullback ( read my story here ). I remain steadfast that there is way too much complacency in today’s market- despite long-term tailwinds. In the short-term, we are truly walking on ice.