![]() ![]() Regulators, as well as plenty of investors, have worried that the new-look Treasury market could seize up in times of stress, causing strains in the real economy. These structural changes in the way finance works may mean that markets are more prone to bouts of erratic trading and nervous breakdowns. Banks play a smaller role as the middlemen in financial markets, their place taken by computers and specialist trading firms. American companies get 57% of their debt funding from investors in bond markets, up from 45% in 2007. Most household mortgages now originate outside the banking system, and are issued as securities and held by investors. Over the past decade debt and equity markets have played a bigger role in finance, in part owing to tighter regulation that has inhibited risky lending and trading by banks. The other question is whether financial-market turmoil may eventually amplify economic problems, rather than merely reflect them. And China’s zero-covid policy is damaging its economy and adding to supply-chain snarl-ups around the world. Meanwhile, war in Ukraine has stoked energy prices. But the more zealous the Fed has to be, the more likely it is to cause a recession. America’s unemployment rate is just 3.6% and more than 11m jobs remain unfilled. One question is whether the market slump signals deeper trouble in the economy. Bitcoin is trading at about $27,000, half its value in November. ![]() Many speculative assets without cashflows have done even worse. For the same reason, prices of bonds with long maturities have fallen heavily. The sell-off has been vicious for technology stocks whose valuations rest on expectations of much larger earnings far in the future. If history is any guide, it won’t be able to reclaim this line and stocks will begin their next leg down in the next few weeks.Higher real interest rates erode the present value of future cashflows. The S&P 500 is just about to test its 200-DMA/40-WMA. What exactly is a bear market Put simply, bear market is the term used to describe when the equity markets are down 20 or more from their most recent all-time high. So where are stocks trading today in relation to this line? Here again, the S&P 500 was unable to reclaim the 200-DMA/40-WMA. During the Tech Crash, the S&P 500 was never able to break above this and stay there.Ī similar dynamic played out during the Housing Crash. Historically, the 40-week moving average (the same as the 200-day moving average) has been a line of GREAT significance during bear markets. This begs the question… if this is indeed a bear market rally… when will it end? Put another way, when does the next leg down begin? ![]() In this context, the current rally in stocks is 9 weeks old (a little over two months) and has seen the S&P 500 rally some 17%. During the Housing Crash, the S&P 500 experienced four rallies, ranging from 10% to 15% and lasting one to two months each.During the Tech Crash, the S&P 500 experienced four rallies, ranging from 10% to 25%, and lasting two weeks up to 2.5 months. ![]() It is extremely common for stocks to rally, and sometimes by quite a lot and for as long as two months, during a secular bear market.Yesterday we put this recent stock market rally in the context of historical bear market rallies. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |