It’s hard to look beyond profit-taking as the culprit, blaming Chair Powell’s gloomy outlook is too far fetched, its more likely retail traders caught in stock market sector microbubbles getting stopped out.
Broad-based risk reduction in Asia looks to be extending into the London open. Oil-sensitive FX and currencies with a higher beta to US equities – like the Australian dollar are leading the way. At the same time, the selloff is getting compounded with oil -3.5 % and equity futures falling precipitously
It’s hard to look beyond profit-taking as the culprit given how far equities climbed and the dollar sold off over the past two weeks. In my view, worries that that Fed Chair Powell was too gloomy on the economic outlook seem hard to swallow as a driver of the risk selloff. We should be thanking him for not sounding too upbeat; otherwise, he might have been accused of triggering a taper tantrum style selloff.
The Fed was boxed into a no-win situation as the bears needed something to latch on. Enter stage left, an eloquently bearish market note by one of Wall Street Finest has shined a light on stock market price mismatch to the economic reality that seems to be today’s flavor of the day.
Nothing about the FOMC yesterday was ‘bad.’ I think the problem for markets is that the Fed did not move its own story forward. There were the most minimal of changes in the statement and a press conference that was mostly finished as soon as Fed Chair Powell had finished reading his set statement.
Markets entered this week fully “stocked” up, and I guess the Fed would have needed to put the pedal to the metal into further policy easing to keep the rally afloat.
Here we are amid a massive wave of profit-taking while taking a step or two back to reality. I think today fits into the sobering category as opposed to risk-off, but only time will tell if today’s trades stay in the market’s pocket. But nothing about this move seems right, least of all the reason the red flashing headlines are suggesting.
Believe what you may, but the Fed didn’t trigger todays formidable selloff, but panicked retail traders did.
They were ripe for the pickings, and all bulled up in a bunch of stock market microbubbles.
Which were likely fueled by:
- people having extra savings and nothing to spend money on
- can’t wager on or watch sports or go to bars
- a new culture of day trading has emerged with Dave Portnoy as the supreme leader
- and, of course, people tend to over-consume free goods and retail stock trading. now “free.”