Stock Market-Bonds Say Slowdown & Stocks Say Boom! Who’s Right? Read It!
March 25 2022 Option Professor Opinions & Observations
We had a very enjoyable trip to Jamaica (with a 1500 to 1 exchange rate; we got a birds eye view of why Digital could be the answer for currency challenged countries). There has been a Sea Change in the last 2 weeks so it’s time to opine
First Off; the Fed has DOUBLED it’s dot plot of how many hikes and the idea of 1/2 point hikes are looking very certain. HOWEVER; this week we saw the yield jump 16% in a week! Obviously; the market is WAY AHEAD of the Fed’s itinerary. It seems that HALTING INFLATION is job one and EMPLOYMENT is secondary (recent stats show jobless rates are LOW and in 12 states they are at RECORD lows. The CPI number comes out April 12 followed by a Fed meeting April 16. The Treasury markets have sold off far UNDER their 1-2-3yr moving averages that we could see a sell rumor/buy fact deal. We told readers that the Bond Market cyclical peak was March 2020..now in a bear market…so selloff no surprise here. Much of what the Fed has in mind is being discounted as we speak UNLESS they decide to go VOLKER on us and raise rates ABOVE the inflation rate to put the genie back in the bottle….not likely…but will 2% or 4% even do the job with the kind of job market, household/corporate balance sheets, demographics, and ex-Covid demand being unleashed??? There may be OPPORTUNITIES in High Yield and Municipal Bonds being created by the mass exodus from funds and ETF’s where the managers must sell to meet redemptions (when was a mass exodus not a bargain hunters best time?) Always dangerous to catch falling knives but a maturity date, reliable issuer, and attractive yield is the Triple Crown.
Second Off; Stocks obviously took the Fed talk and determined that this economy can handle a cautious Fed, a war, inflation and a disease (Covid) without skipping a beat. We told readers that the Growth to Value Ratio peaked in Dec 2021 BUT had run too far too fast opening up the door for a face ripper rally in tech-growth- semis and high fliers. We saw that in spades in the last 2 weeks BUT now we are into neighborhoods and dates that could be more troublesome. Some news we found amusing were things like luggage sales are DOUBLE y/o/y and home sale are declining 4 months in a row blamed on inventory but maybe it’s affordability. We saw report that 50% of millennials live paycheck to paycheck (worker revolts via unionization (Starbucks) and demand better treatment (Amazon). We are seeing cash outs on REFINANCES at levels not seen since mid 2000 bubble. TECHNICALLY; the SPX have gotten OVER much of the levels of resistance we spoke of in early March (4280-4380-4440-4510) which may be support BUT the Feb HIGHS at 4600 area combined with an post EOM exhale and profit taking going into the CPI report & Fed Meeting is a short term risk.
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