The sharply rising volatility – a double grip on stocks and bonds – gave the bulls a one-way ticket. And what about a rate hike? He does not figure in the FED’s base case, but he returned to his speech.
April anticipated the Sell in May. More than on its own merit, or collision with a serious mishap, because the stock market’s inexhaustible rally ran out of remainder. After three consecutive weeks on the decline, the stumble is a fall. For him S&P 500which once again crossed the Rubicon of 5000 points, but this time in retreat, and in its worst week since March 2023, It is a decrease of 5.5% from the records. The Nasdaq, sharply, fell the same in just one week, which it had not done since November 2022. Netflix (-9%) ruined Friday with its ads. And there was no antidote against NVIDIA, the star of the artificial intelligence boom, which without eating or drinking it sank 10%.
There’s no doubt about it: sentiment soured in April. The sharply rising volatility – a double grip on stocks and bonds – gave the bulls a one-way ticket. With fear at the helm, the bears stroll through the garden. But it could be worse. Iran attacked Israel with a barrage of drones. And Israel retaliated with another air raid. There were apparently no deaths to mourn; yes, the waste of weapons. It won’t be the two-cent opera, but it won’t be the start of World War III either. If the parties are satisfied with this pas de deux This are very good news. This was understood by the price of Brent crude oil, which depressed 3% after the exercises of the forces of heaven.
What can we say about other more earthly problems? Tenacious inflation boycotts the FED’s plan to begin lowering its interest rates. And to do it before the last mile of the electoral campaign in the US. Neither Jay Powell nor his boys cried foul over the unexpected rebellion in prices. But the initiative was frozen. “We need greater confidence that inflation is moving sustainably towards 2% before relaxing policy”said the big boss. The rhetoric is rearranged so that, without being aggressive, it is not dissociated from current reality. “Recent inflation data has clearly not given us greater confidence and indicates that it is likely to take longer than expected to achieve this.” Maybe all of 2024 will be consumed. Maybe it will happen sooner, but only towards the end of the year as John Williams and Raphael Bostic pointed out. And what about a rate hike? It does not appear in the FED’s base case, but he returned to his speech. Not as a threat. Yes, to establish that if needed it will be applied. There was no fiscal dominance that stopped the vertical rise of rates from zero to 5.50%. And there won’t be any for an extra coat of fine plaster. For now, with the increase in long rates it should be enough to deflate the effervescence (as in the second half of 2023).
Balances and market conditions
The balances started their season on the wrong foot. Netflix’s guidance highlighted the danger of not living up to what is expected. But failures are the exception and not the rule. Positive surprises rule. If this continues, the S&P500 firms will close the first quarter with a 7% year-on-year increase in earnings per share. The hope of double-digit growth this year and next will remain intact. And that is what counts. If the balance sheets are not a drama, what was damaged are the market conditions. The shower tests investors’ stomachs after a very sweet, fast and robust rise. Faced with the shock, it’s time to endure and defend what has been obtained or take profits, still juicy, and leave. And after long months of overbought, the market quickly turned into extreme oversold. A rebound is to be expected, especially with a good PCE inflation number. But let the anxiety continue, too. There is no rush to finish this necessary stress test. A manual correction means a 10% drop and we are halfway there and without a guardrail. Short averages were easily broken for all major indices.
It is a paradox that The Conference Board’s leading basket has stopped, just now, predicting a recession. The IMF says the same and improved its global growth projections. The Stock Market, which saw all this long before anyone else, must weigh its convictions. You have the right to take your time. It will examine the quality of the ground underfoot and the data flowing in for cracks. And when you see fit, with no recession in sight, you can take advantage of the dip, buy the slip and evict the intruders from the garden.
Source: Ambito
