Fed mistakes could spark 'unusually fast' bear market, 'lost decade' for stocks

[yallerdawg]

File this under, "We warned you, deplorables!"

Source: Market Watch, by Ryan Vlastelica

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Barry Bannister, head of institutional equity strategy at Stifel, said it was a concern that the Fed’s view for 2019 and 2020 had grown more hawkish, which raised the risk of the central bank making a policy mistake.

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Bannister argued the new Fed, under Powell, “wishes to fade the ‘Fed put,’” or the idea that the central bank would step in to prop up falling equity prices. “The cost may be a 16% P/E drop,” he wrote, referring to price-to-earnings, a popular measure of equity valuation.

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These moves have come at a time when investors are heavily exposed to the equity market. TD Ameritrade recently reported that its retail clients ended 2017 with record levels of market exposure, while cash balances for Charles Schwab clients were at record lows in December, according to Morgan Stanley. Meanwhile, the AAII stock allocation index is above 70%, near its highest level since 2000.

The high level of ownership “points to a 0% total return” between 2017 and 2028, he wrote, adding, “After the central bank bubble of recent years the model now points to a rapid 20% drop ahead.”


Read it all at: https://www.marketwatch.com/story/fed-mistakes-could-spark-unusually-fast-bear-market-lost-decade-for-stocks-2018-03-28

[PoindexterOglethorpe]

1. At the moment,

11:20 am EDT, the Dow is up 264 points, just over 1%.

[yallerdawg]

2. Wild fluctuations are consistent with...

a bear market.

We had the third highest Dow increase in history last Friday.

Remember why?

[PoindexterOglethorpe]

3. Also keep in mind that this market has climbed steadily

for eight or nine years without even a minor correction, which would be 10%.

And honestly, I'm thinking something or another bit of news happened Friday, but not sure.

The other thing to bear in mind is that the vast majority of the buying and selling is from programmed trades, not when you or I call up our broker (or even go on-line) and buy 100 shares of Microsoft. Which is why if selling starts, it can be hard to stop. Buying is similar.

Personally, I have no plans to get out of the market, and can weather a certain amount of loss.

[yallerdawg]

4. I was mistaken. It's going so fast!

Thursday and Friday was big 1100 point drop.

Monday was the 600 plus rise.

The last R in charge took us to the Great Recession. Tax cuts and deregulation, fiscal policy, "bubbles" bursting.

Guess who has the keys? And should we expect any other result?

[PoindexterOglethorpe]

5. From what I've read here on DU,

the market was supposed to crash immediately after Trump was elected, or no later than shortly after he was sworn into office. Some people apparently got out of the market entirely.

They missed a decent run-up during his first year.

Trying to time the market is a fool's game.

[IronLionZion]

6. The market was riding high until the tax cuts

then we saw a correction, directly connected to the increased debt to pay for it.

There will be sell offs when that shithead announces tariffs or some other disastrous trade policy

He's been tweeting about Amazon. Facebook, Google, and others involved in data gathering could face regulations soon which affects many tech companies.

[PoindexterOglethorpe]

8. Uhhhh, he's already announced tariffs.

Of course reaction to them might be part of some of the recent declines.

Again, I'm not concerned, especially not over one or two percent changes. I'm not even that concerned over a correction, a 10% decline, and would really like to see that happen. We're way overdue.

And yes, my own investments are down perhaps five percent from an all time high earlier this year, but I didn't think that high was sustainable anyway.

[Exotica]

9. The tax cut bill had little to do with it

It was passed on Dec 20, 2017 (and Wall Street knew well before it was going to pass). It's passage (and presumed effect) was baked into the cake. On December 20, the DJIA closed at 24,726. Post passage it continued to rise substantially, peaking at 26,616 on January 26, 2018. I bottomed out on February 8th, at 23,860. It has went see-saw since then, with a slight upward trajectory (it closed today at 24,103. In between the low on Feb 8th, and today's close, it went as high as 25,709 on the 26th of February.

By far the main drivers of the pullback were 2 interlocked things: the Feb 2 jobs report where the economy added 200,000 jobs, and wages grew by 2.9 percent, the most since 2009. Also, and very much linked to the report, the market is terrified of inflation, with the Fed then fighting this with higher interest rates, tightening monetary policy, thus turning off the easy money spigot that has been rolling since the quantitative easing regime started in 2008.

[IronLionZion]

10. Treasury has to sell more bonds to pay for it

which raises interest rates on bonds. The Fed is also selling bonds to roll back their stimulus. As rates go higher, there will be some selling equities and buying bonds, especially for retirement funds and many balanced mutual funds.

I'm not talking about a 1 day drop in the DOW. I'm thinking of a multi-year situation of low or no growth in equities, and plenty of volatility ahead.

[Exotica]

11. I agree if you lengthen the event horizon, yes, it will, of course have some effect

I was strictly dealing with the February/March sharp, semi-corrective sell-offs. I am glad to see you have a good grip on monetary policy/market understanding.

[Awsi Dooger]

7. I'll take my chances

I lost many of my advantages in sports betting so I transferred to primarily an investor who dabbles in sports wagering. If the market stalls I'll simply reverse the tilt.

Let's put it this way...I don't think my Apple stock is returning to cost basis levels.