Several TMF posts and articles in the financial press have wondered, “Are we near a bottom?” Some even say that inflation has to get better because it can’t get worse.
Mommy, are we there yet?
Even the WSJ:
**Market’s 2022 Slide Has Already Changed Investor Behavior**
**Once-popular trades fall out of favor as investors brace for further volatility**
**By Akane Otani , Karen Langley and Gunjan Banerji, The Wall Street Journal, May 8, 2022**
**<snip sad examples of declines in stocks, options, cryptocurrencies>**
**The share of investors who believe the stock market will fall over the next six months ended April at its highest level since March 5, 2009, according to the American Association of Individual Investors. Widespread pessimism isn’t necessarily bad news. Some analysts view the AAII survey as a contrarian indicator, betting that when sentiment appears to have soured to an extreme level, markets are poised for a rebound....** [end quote]
So if the dumb money (people like me) think the market will go down, it’s going up! Right?
Now, let’s look at this METAR style.
Do these look like bottoms? They look like falling knives to me.
Is inflation ending? Any sign of a top? Any news that Covid is getting better in China? Notice that there are 2 jobs per unemployed person. See any sign that wage inflation is ending soon?
Is the Fed satisfied that its current fed funds rate raise is sufficient to control inflation? No, it’s only raised the fed funds rate 0.75% but is seeking a “neutral” rate – one that is at least as high as inflation so it won’t stimulate the overheated economy. They have already said that they will raise the fed funds rate at least twice more, 0.5% each, PLUS reduce their long-term Treasury and mortgage bonds in a month or so. Do you think the markets have priced that in so well that they will ignore it when the Fed acts?
The Fed always raises rates in cycles. They have barely begun. How long do cycles usually last? How long before the market bottoms? Hint: it’s not 2 months, folks.
Finding the bottom METAR style: it will be AT LEAST 6 months, maybe a year. Wishful thinking and mechanical analysis that ignores Macro factors will not even begin to find a bottom.
When the market pundits are screaming and there is blood in the streets…and inflation begins to decline decisively enough that the Fed can declare victory … that will be a bottom.