I received an email this morning that is symptomatic of the current psychology prevailing in the market currently:
“It seems to me like much of the market movement these days due by the huge increase in algo-driven trading and also by direct or indirect CB intervention. Every time you see the market dip, even just a little, you get what seemingly used to be a rare, V-shape rally. It’s like a shot of liquidity hits the market at just the right time or right technical level, the algos hit it, and the market just shoots higher. We don’t even get a 5% drop anymore.”
It certainly does seem that way. As I posted just last week, the reinvestment of the Fed’s balance sheet has certainly been very well timed. Each time the market has stumbled, the Fed has been there to provide the “safety net.”
But it hasn’t been just stocks “on a run” as of late, but bonds as well. Interestingly, despite the current exuberance of earnings growth, expectations of “Trumponomics,” and a “hawkish” Fed hiking rates, the bond market continues to reflect weak economics, sliding inflation and concern about legislative progress.
Economic data is not buying it either. Headline after headline, as of late, has continued to disappoint from new and existing home sales to autos, to inventories and now employment. This also put the Fed at risk of further rate hikes this year as noted on Thursday:
“It appears traders are losing faith in the rest of the year as the odds of a hike occuring in December is now above that of September (as both drop to around 25%). As economic data has crashed since The Fed hiked rates in March, so the markets expectations has dropped to just 1.44 rate-hikes this year (one in June guaranteed), well below The Fed’s guidance of 2 more rate-hikes minimum.”
