SPX: Market and Macroeconomic Outlook
Technical Simple overview:
It is well known among professionals that moving average 200 is one of bear market indicators as when the market is below it, the market considered in a bear market and when the market is moving above it, it will be considered as bull market. From chart perspective, we can see that the market can deviate from the moving average when bull market create big run in a short period of time.
I have measured the approximate deviation between major tops and their MA200 at a time to see the percentage of deviation between the price and MA 200. We can clearly see that the last year and year 2020 shown a huge deviation from the moving average which due to Quantitative Easing, Stimulus and inflation.
Interest Rate forecasting:
Yesterday in the Fed Meeting, overview FOMC indicated a hawkish sentiment over interest rates, in simple english they need to increase interest rate in order to fight inflation which is said to sit around 3% at YE 2022. They also indication the interest to decrease Fed balance sheet to around PRE-COVID19 levels.
From yesterday's minutes, we can take these two major statements:
"Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated."
"Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve's balance sheet relatively soon after beginning to raise the federal funds rate,"
I will continue to talk a little technical words and then I will explain it in simple english relevant to the market.
In order for the Fed to shrink their balance sheet which reached around $8 trillions, there are arguments of either selling bonds they have or more probably they will wait until maturity of these bonds. In theory, by shrinking its bond holdings, the Fed could prop up longer-term yields. Relying less on rate hikes would meantime reduce the amount by which short-term rates rise.
“A few of these participants raised concerns that a relatively flat yield curve could adversely affect interest margins” for lenders, the minutes said, referring to a sub-group of those favoring greater reliance on balance-sheet measures. Such a yield curve “may raise financial stability risks,” according to these officials."
Now to the simple english in relation to the stock market:
1- When reducing Fed Balance sheet, long term rates may rise (for bonds..etc), but if hikes is not too much, short term rates won't move that much.
2- Interest rates increases make investor to search for less risky investments (long term and short term) with consideration for inflation rates
3- In repeat to what happened during 2018, the market will look for a correction if the Fed applied what is being anticipated (increase interest rate).
4- Expectation will be that same market movement as 2018, growing but slowly or may even be a neutral year. This will provide long term opportunities.
until next time,
AgentHK
It is well known among professionals that moving average 200 is one of bear market indicators as when the market is below it, the market considered in a bear market and when the market is moving above it, it will be considered as bull market. From chart perspective, we can see that the market can deviate from the moving average when bull market create big run in a short period of time.
I have measured the approximate deviation between major tops and their MA200 at a time to see the percentage of deviation between the price and MA 200. We can clearly see that the last year and year 2020 shown a huge deviation from the moving average which due to Quantitative Easing, Stimulus and inflation.
Interest Rate forecasting:
Yesterday in the Fed Meeting, overview FOMC indicated a hawkish sentiment over interest rates, in simple english they need to increase interest rate in order to fight inflation which is said to sit around 3% at YE 2022. They also indication the interest to decrease Fed balance sheet to around PRE-COVID19 levels.
From yesterday's minutes, we can take these two major statements:
"Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated."
"Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve's balance sheet relatively soon after beginning to raise the federal funds rate,"
I will continue to talk a little technical words and then I will explain it in simple english relevant to the market.
In order for the Fed to shrink their balance sheet which reached around $8 trillions, there are arguments of either selling bonds they have or more probably they will wait until maturity of these bonds. In theory, by shrinking its bond holdings, the Fed could prop up longer-term yields. Relying less on rate hikes would meantime reduce the amount by which short-term rates rise.
“A few of these participants raised concerns that a relatively flat yield curve could adversely affect interest margins” for lenders, the minutes said, referring to a sub-group of those favoring greater reliance on balance-sheet measures. Such a yield curve “may raise financial stability risks,” according to these officials."
Now to the simple english in relation to the stock market:
1- When reducing Fed Balance sheet, long term rates may rise (for bonds..etc), but if hikes is not too much, short term rates won't move that much.
2- Interest rates increases make investor to search for less risky investments (long term and short term) with consideration for inflation rates
3- In repeat to what happened during 2018, the market will look for a correction if the Fed applied what is being anticipated (increase interest rate).
4- Expectation will be that same market movement as 2018, growing but slowly or may even be a neutral year. This will provide long term opportunities.
until next time,
AgentHK
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.