What a wild week this has been! On, almost a daily basis, we have seen the Dow and NASDAQ either open down by hundreds of points but end the session in the green, or just the opposite. Intraday swings of over 500 points on either index, was almost a daily ritual! So, what gives?
As one might expect, there were a lot of things in the mix: things that you would think would drive the markets lower but also things that should (normally) drive them higher. All of that happened.
Traders concern themselves with some funny stuff sometimes. For example, they (typically) might be motivated by expectations of the effects of future – but expected – events. But on second thought, have another idea that overpowers that train of thought. The over-powering one is that even if their idea of the future is correct, unless there is broad support for their thinking the markets may be driven lower by the contrarians. No surprise actually. After all, the markets are a form of democracy in action.
The pivot point of the week was Fed Chair Powell’s speech on Wednesday. The ‘Street’ had been waiting with bated breath for the Fed’s decision on rates. When the announcement came to leave them at current levels, markets cheered and added several hundred points to Dow and NASDAQ each. But the more Powell talked the more the sentiment turned sour.
When Powell started explaining the ‘tightening’ strategy that the Fed might be taking — the listeners heard basically one thing: The Great Pumpkin of Liquidity may be going away. What unnerved most traders and investors was that the Fed Chair may have inadvertently said something that was exactly opposite from what he intended.
Powell knew that people wanted to have some comfort in whatever the Fed might actually end up doing whatever it would be, it would be a carefully considered move; that it would NOT be knee-jerk and THAT meant it would also NOT be something that would trigger knee-jerk reactions from the populace or the markets. Sounds like a reasonable content for a speech. However, what many of the ears straining to understand was that…since the Fed was not going to do anything willy-nilly, it was also quite unsure as to what the heck it might actually do. That had the unfortunate effect of putting right into center-stage the one thing markets hate most: Uncertainty!
Professional traders and money managers know how to make money in almost any economic environment. Once they read the lay of the land, strategies can be put in place. If you cannot read the lay of the land, you will, wisely, wait until you can see it.
Ron’s Market Minute – More of the Same
Things have been pretty wild in equity markets this week as the traders out there try to size up the current outsized moves. Monday saw a Nasdaq selloff followed by the biggest comeback since 2008 as the index moved from a drop of nearly 5% to end the day UP in positive territory. Who would have believed? Similar motion happened in the S&P Index* and the DOW* which both ended up for the day.
Things looked a bit overstretched to the downside and buyers (obviously pounced), so SOME sort of bounce was reasonable and expected. It doesn’t mean we’re in the clear but there has been a lot going on this week. It appears to me that investors are nervous about the high inflation readings and rising rate environment at the moment. And the Fed has a history of almost 100% overcorrecting, so that adds another worry. Earnings seasons have been positive for the past couple of quarters; this particular earnings season may be an exception.
So, when we see rapidly rising rates, the market running crazy- overtime, and the computer algos buying and selling like mad, it leads us to expect continued volatility. (Note- it appears that over half of the market trades this week have been done automatically by computers!)
On a Client Front:
Those days with the huge drawdowns in the markets certainly slopped over to client accounts. I’m pleased to say that, because of our large moves to a more conservative equity posture, client accounts drew down less than half of the index drawdowns. There’s some comfort in that.
We’re continuing to maintain a very conservative posture.
Ronald P. Denk, CFP®
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
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