June 17, 2022
Good morning,
Futures are pointing up this morning (+1%-ish), following a very volatile four days in stocks and bonds that took the S&P 500 Index down another 6%, and flattened the yield curve right to the point of inversion. All that despite the Fed’s acquiescence to the market’s demand for larger rate hikes than the Fed had forecasted. For the record, markets typically act better when the Fed caves to their demands.
Today is another quarterly Expiration Day when almost all derivative contracts (options and futures and options on futures) across most markets expire. They are commonly volatile days unto themselves often behaving without economic explanation. A magic 8-ball is usually as good as anything else predicting where an Expiration Day will close. Embrace the randomness of the day or better yet, ignore it.
The Fed’s rate hike Wednesday afternoon triggered an “often early warning” sell signal (see NDR chart below). The signal has preceded a recession 14 out of its 17 signals. The three exceptions do not reflect market gains, but the selloffs then were not accompanied by an official NBER defined recession.
Up until this week I have believed this year’s market decline has been the walk back of fiscal and monetary super-stimulus injected into global economies to fight Covid starting in 2020. I attended an investor conference this week and came out of it wondering if this year’s selloff isn’t more than that. I will review my notes and gather my thoughts over the long weekend and present them to you Tuesday morning. In the meantime, have a nice weekend.
Be well,
Mike