Stocks confuse market timers when cycling gears

bull or bear, in stock recently, The punishment has become the same. Fast and brutal.

Lockstep moves, up one day and down the next, like a storm swirling through the market, like worry about inflation Alternate with optimism that the economy can cope.

Tuesday’s swing, in which more than 400 of the S&P 500’s companies moved in the same direction, is a pattern that has been repeated 79 times in 2022, a rate that has topped if it has continued in any year since at least 1997. Will be

The extremely hot-to-handle market is making life impossible for them timer will beSurrounded by different ideas on how to ride a bicycle.

An investor can count on the Federal Reserve to cut rates, a study by Bank of America suggests Sign for a Market FloorWhile another from Ned Davis Research has suggested your time of entry The first is for the suckers according to their instincts.

“Macro trends come and go. And I don’t think there are more than a handful of people who can actually claim to be predictive,” said Brad McMillan, chief investment officer at Commonwealth Financial Network.

“I admire the intent behind it, but I question the usefulness.”

Increasingly, the world’s largest stock market is behaving like a giant trade whose direction is difficult on a day-to-day basis.

Tuesday’s losses, the worst in two years, were driven by a warmer-than-expected reading of inflation. This followed two consecutive sessions where more than 400 stocks in the S&P 500 edged up.

At 3,873, down 4.8 percent in five days, the S&P 500 lost all of the previous week’s gains. It has now moved up at least 3 percent in opposite directions for three consecutive weeks, a period of volatility not seen since December 2018.

Underlying whiplash are fast-moving narratives. The latest emphasized downside risks, especially after FedEx withdrew its earnings forecast on deteriorating business conditions, a worrying sign for the global economy.

“The conversation immediately shifted from ‘good earnings despite headwinds’ to ‘future earnings are going to be challenged by really high borrowing costs’,” said Larry Weiss, head of equity trading at Instinet. “We did 4,100, 4,000, and 3,900 pretty quickly.”

All types of investors are paying the price. This week’s turmoil came on the heels of furious coverings by short sellers, who last week bet themselves only to sit and watch as the market validated bears case.

While volatile times are supposed to be when active managers shine, the price of something going wrong in the market is turbulent and correlated because it is expensive.

The risk of bad timing can be illustrated by a statistic that highlights the potential penalty an investor could face from the largest single-day gain. For example, without the best five, the S&P 500’s loss for the year jumped from 19 percent to 30 percent.

With the Fed’s monetary policy arguably the most important factor in stock investing these days, a big question is whether the path of interest rates gives any clue on the trajectory of this equity layoff. Answer is not clear.

Bank of America strategists studied seven bear markets and found that the bottom always came down once the Fed began cutting rates — an average of 11 months after the first tightening. In other words, it would be better for investors to wait until the central bank slows down before diving back.

Ed Klisold, a strategist at Ned Davis Research, tackled the question with a similar approach, plotting the distance between the start of a spontaneous cycle and the end of a bear market.

Since 1955, while the average bear market ended around the same time the Fed began cutting rates, their analysis showed that the range has been massive, sometimes years earlier or later.

“The data argues against using a single rate cut to call for a new bull market,” Mr Klisold wrote in a note.

Complicating matters, the Fed’s action is itself a dynamic target. After treating inflation as “temporary”, the central bank is under increasing pressure to control price hikes, which have turned hotter than expected this year.

With the central bank gearing up for another big rate hike this week, it looks like the fixed income market is turning its stance when the Fed will reverse its course.

A more aggressive Fed is betting that there will be a rate cut soon. As a result, short-end Treasury yields jumped higher this week than longer-dated ones, extending the yield curve inversion across different periods.

Updated: September 18, 2022, at 5:00 am

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