A few weeks ago, I asked if you believed the current rally was here to stay. At that time, the market had been rallying since the middle of June. Some market participants were calling the June low ‘the bottom.’
Time will tell if June was the bottom, but based on what has happened over the last two weeks of August, I am betting that we have not yet seen the bottom.
Let’s review quickly what just occurred. The Federal Reserve’s President, Jerome Powell, told the country that there would be “some pain” in the coming months. Powell also said that the Fed would “keep at it until the job is done,” referring to getting inflation under control.
Powell didn’t detail how severe the pain would be or how businesses and households would feel it. Still, I think it is safe to say that Powell acknowledges we are likely heading towards a recession.
The market’s reaction to Powell’s comments sent the S&P 500 down 9.2% since the August 16 high of 4,327. The NASDAQ is down 11%, while the Dow Jones Industrial Average is off by 8.2% since August 16.
Not only is the NASDAQ down double digits, but the exchange-traded funds that track the major indexes, The SPDR S&P 500 ETF (SPY) and the Invesco NASDAQ QQQ ETF (QQQ), are both now trading below their 50-day averages. That is in addition to them already having given up their 200-day, 100-day, and 20-day moving averages.
Furthermore, economist after economists, jumped on the ‘recession is imminent’, bandwagon this past week. Most of these economists have even pointed out that the Federal Reserve has miscalculated the intense inflation we are experiencing.
They were referring to when the Fed told us back in the spring that the inflation we were experiencing at that time was “transitory.” The Fed was wrong about that, and it is unlikely that the Fed members want to be wrong again by underestimating the persistence of current inflationary causes.
Due to their previous missteps, many believe the Fed will not take its foot off the gas quickly enough. This makes it unlikely the economy will…
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