The market dropped significantly yesterday as St. Louis Fed President James Bullard — one of the central bank’s most hawkish officials — said he thinks “markets are underpricing a little bit the risk that the FOMC will have to be more aggressive rather than less aggressive in order to contain the very substantial inflation that we have in the US.”
Essentially, he is telling investors to not get their hopes up! I had some good trading today on TSLA with Brian, and we posted our recap here.
Ardi and I are in Dubai, and we reunited with our mom who visited us from Tehran, Iran. We are having a good time together.
With regards to the market, Ardi wonders why investors would invest in the stock market, given a risk-free rate of almost 5% and some high-grade corporate bonds at 8%. Instead, they are more apt to just deposit their money in risk-free assets and bonds and get an 8% return. If we are lucky, SPY will one day again deliver an annual return of 10%. Until then, why take the risk when there is such a good alternative?
But when will the market bottom and when will we see all-time highs again? The answer is in macroeconomic indicators. The monthly manufacturing survey was released yesterday and it was kind of a mixed bag (like everything these days). Although the headline number was negative, it was a bit better than expected. Meanwhile, the employment sub-index was still in positive territory, meaning that more firms are adding workers than reducing payrolls.
Headline inflation is still very elevated (around 6%), but there are many disinflationary trends out there. Commodities have come in a lot, particularly oil. Shipping costs have come down a lot and supply chain stress has eased.
I think we will see the market bottom around March 2023, and then it will slowly start grinding up.
What do you think?
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Lastly, I am excited to be speaking this Thursday, December 1, at MoneyShow’s The World of ETF Investing Canada Virtual Expo. My presentation is titled: Leveraged ETFs and How to Use Them Responsibly in Trading and Investing. I am up at 12:25pm ET and I would love you to join me. You can sign up for free here.
To your success,