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- Markets are cautious awaiting the Fed
- After a tumultuous 2022, many investors are waiting on the sidelines, holding cash and waiting to get in
- With risk averse sentiment dominating and plenty of liquidity on the sidelines, markets could recover in the second half of the week
It closed lower yesterday. This is nothing new, considering the same thing happened the last three times Powell spoke.
I don’t expect any surprises. It’s likely that A and Powell will maintain their stance on fighting (“we’re improving, but it’s not time to rest yet”). As always, the markets are pricing in such a scenario.
In the meantime, while the focus is still on the recession and earnings (we’ll have a special analysis once the quarters are over), there are other situations worth considering.
After the sell-off in 2022, there is still a lot of liquidity on the sidelines that needs to be deployed. We can see above that several funds are at all-time highs not seen in years (curiously enough, they were also at very high levels in 2009 when the market was recovering from the subprime bubble).
Buyback announcements from several companies in January could support prices.
In general, we do not see the euphoria that characterizes a bubble burst, where the collapse comes after markets are taken by surprise.
After a year like 2022, the markets are already negative in terms of sentiment, and looking at the chart below, we can see that traders are still in a risk-off mode.
When traders are negative there is usually a lot of caution, and as a result it is hard to be caught off guard if the market continues to fall.
However, the surprise may come from the opposite direction. A continuation of the rally could trigger a buying frenzy in a self-reinforcing mechanism between short closings and new buying.
In that sense, this week won’t be so much about the FOMC’s decision on the size of the hike, nor even about Powell’s words (which I think will be confirmed as aggressive).
Instead, it’s about how the markets react in the second half of the week and the week after.
disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, guidance or recommendation to invest as such and is not intended in any way to encourage the purchase of any asset. Let me remind you that each type of asset is assessed from multiple points of view and is very risky; therefore, all investment decisions and associated risk remain with the investor.
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Sources 2/ https://www.investing.com/analysis/us-stock-market-has-plenty-of-reasons-to-rally-after-feds-decision-200634857 The mention sources can contact us to remove/changing this article |
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