Given the sharp S&P 500 intraday reversal to the downside that I don’t see as ending next week, I’ll discuss the medium term stock market prospects in tomorrow’s extensive analysis. The point of this Sunday’s update is to throw cold water on any notions of a fast turnaround.
The direction in stocks until the reprieve later in Oct, is down, and the downside risks are accentuated given the Fed’s course – but what would facilitate the upcoming rally? Stabilization in yields at the long end of the curve is a precondition, and that‘s when some bullish divergencies and weakening selling pressure in stocks would be seen. The conditions for a rebound are slowly materializing, and it‘s up to the buyers to act on them as Oct draws to its close. That would be the good finish to the year (Santa Claus rally) before the worldwide recessionary winds stiffen next year.
Remember that it easily takes a year for the rate raising effects to play out, and this tightening pace was fastest since the mid 1990s when Greenspan took Fed funds rate from 3% to 6% – and we‘re hearing Mester still say that the current one (4.5% Fed funds rate at year end is projected by the way) isn‘t yet restrictive, and I told you last week about their plans to keep it at a slightly restrictive level for a long time in a bid to avoid tipping the economy into recession.
You can have a look at prior Monday’s extensive analysis talking long-dated bonds’s signalling role in the real economy prospects, and the difficulty of stabilizing them when the Fed and foreigners are backing away from increasing their holdings.
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All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.
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