Wall Street Doesn’t Like
the Central Bank’s Assessment
Up until this Wednesday, when Chairman Powell told us what the FED plans to do in 2022, the risk level in the market was severely high. Between raging and unceasing inflation, the fear that the real economy wouldn’t be able to cope with normalized interest rates, the Black Swan event of Russia’s invasion of the Ukraine, and the resulting commodities spike, along with the January Omicold burst, which sent entire nations into labor shortages, there was plenty reason for fear and panic.
If you weathered the storm and exploited the Blood in the Streets to buy high-quality equities, your future self will thank you, because hedge fund managers just don’t believe what Powell said on Wednesday about the solid economy, the tight labor market and the zero likelihood of a recession in the next 12 months.
Check out their pessimism; they are pricing a 2008 moment:
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Despite it all, though, some Wall Street money did hear Powell and take him at his word, because the markets just closed their best week since the vaccine was FDA-approved, just days after the 2020 elections.
This doesn’t mean we’re out of the woods, because Wall Street won’t change its mind this quickly. Powell’s statements did reduce the risk level in equities, but we believe that what Wall Street really wants to know is whether or not the upcoming earnings season confirms what Chairman Powell says…
They want to see that Corporate America is certain that a recession isn’t coming.
It’s extremely difficult, if not impossible, to invest in equities based on macro-economic indicators.
Investing is entirely about the management team’s ability to navigate any and all economic conditions and build up the company as a result. In a recession, they ought to strengthen their position against weaker companies, and in an expansion, they ought to capitalize on the boom.
The macro-economic data helps in understanding the market’s overall sentiment, so you can learn if you’re investing in times of pessimism or optimism. But it should not deter you from owning more and more of America.
This chart shows you how confusing this gets, when you understand that Wall Street feels that the FED should hike rates by 2.00% at the very least – but to do it NOW, to halt the inflationary spiral – but also wants it to cut back down by the end of 2023.
It doesn’t make any sense to follow these charts, in terms of timing trades or doing anything else, but it does assist in learning that Wall Street is confused. If that’s the case, then where we can really extract value is from knowing that Wall Street is still on the sidelines, cashed up.
They will come back… that’s how they roll, but you can buy equities before they do this year.
Powell told the world that the real economy is strong, that housing and mortgages will absorb higher rates smoothly, that we need to hike and normalize, but Wall Street thinks a recession is ahead.
Which camp are you in?
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