Stock Market-Stocks Rollover? In January to June Perception Became Reality-Again? Read More…..
August 20 2022 Option Professor Opinions & Observations
In the movie Wall Street; there is a scene with an insightful quote by Gordon Gekko talking to Bud Fox when describing how he made money on his painting. He says the Illusion (perception) has become Reality and the more real it becomes the more they will pay. In the first half of the year the Illusion or perception was that rates would rise substantially and valuations would compress. As the first half of 2022 unfolded; the perception or illusion became more and more real and the more real it became the more selling and shorting occurred. This was a classic case of the aforementioned happening on the downside.
In June; the FED hiked 75 basis points and Powell made a comment that “at some point the Fed would slow the pace of rate hikes” which he probably said so that markets would some hope and not panic while the Fed took 7 weeks off and cause systemic problems. However; that is not the perceptive result. The Market’s perception in the last 2 months has been the Fed is about done and inflation a year out will be close to 2% and the terminal rate for fed funds is about 3.25%. We are about to see if that is reality.
THIS WEEK we got retail sales which were up .7% ex gas prices BUT were UP 2.8% in online sales and we all know that’s where a lot of shopping is done…so the consumer spends. We also saw the jobs numbers are still in line with a strong jobs market so consumers have money to spend and even if they don’t we see from credit card data they are running up quite the tab there as well. Where’s the DEMAND faltering?
In the NEXT 4 WEEKS; we will have Jackson Hole and the next Fed hike. The hikes that the Fed has done so far has NOT yielded the expected result IN FACT monetary conditions have loosened (HY spreads tighten, asset values UP 20%++, Wages up, spending up, and inflation still in the 8%-9% range-a loser.
The perception that began on a Fed comment was becoming real due to the fact the Fed was on hiatus and stocks have been bid up because of it & short covering at the 3rd highest level in 10 years (GS data)
In the next 4 weeks; we will see if that PERCEPTION will turn to the perception of the first half of 2022 and if it does the SPX 4350-4400 and VIX 19 range could turn to selling as that perception becomes more real
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