March 2, 2022
Good morning,
I don’t have any new market insight for you this morning, nor have I been able to glean much from the many resources I tap each day. I suspect the reason is because markets are in waiting mode. They are waiting to see any 2nd and 3rd derivatives of last weekend’s announced sanctions.
Commodity prices in general and energy prices specifically are sky-rocketing – direct results of the sanctions. Any market il-liquidity or market mechanism seizures from the commodity price spikes would be 2nd derivatives of the sanctions. None have been spotted yet, but here again, it is a major source of uncertainty and is keeping volatility elevated.
The third derivative of the sanctions would be the Fed’s reaction to a fresh market dislocation caused by a pocket of il-liquidity that ripples through the market mechanism (think 1998 – Long Term Capital, or even late 2018 when Powell tried to remove the Fed put). The primary concern for any third derivative today is that the Fed would seem to have far less room to pivot than Greenspan had in ’98 or even Powell himself had in ’18. Throw another log of uncertainty onto the fire.
So, the passage of time (days) without a liquidity crisis inside a market’s mechanism may be the only thing that lifts a very heavy cold blanket of uncertainty off Index prices and let’s a rebound rally resume.
Hang in there – the alternatives are not good.
Be well,
Mike