Markets have resumed their slide after a large rebound a couple weeks ago. In my last post I mentioned that the Fed needs to change their tune or else it will risk damaging the economy beyond just a slowdown. So far, no dice. In his last address to the market, chairman Powell gave no indication that the Fed intends to change their intention for further rate hikes. Unfortunately, the Fed looks to be at risk of repeating the mistakes it has made in the past basing decisions on what it sees in the rear view mirror rather than looking ahead of what's in front, not taking early signs of a slowdown/troubles seriously enough. US housing is in a clear slowdown. Inflation has been picking up but it's not by any means run away inflation and with oil prices and commodity prices in general slumping, especially the former, future inflation figures are bound to come down and therefore the Fed has justification to say "Ok we're not going to be in a hurry to raise rates any further for a while." It doesn't help though that Trump is criticizing the Fed. That could make the Fed even more resistant to change their tone as I'm sure the Fed doesn't want to give the impression that it's caving in to political pressures. Then of course there's the impact of the trade wars which are starting to bite adding more to the pain. If the Fed doesn't wake up and smell the coffee soon, then things can get really bad.
You have all this hoopla about how positive markets have historically been after a mid term election and the Nov-May seasonality trade. That may have been partly the reason for the markets having such a big rebound. I have never been a fan of these type of seasonality studies as a good predictor for the markets. Seasonality has very little tangible connection to the drivers of the stock market -it's not much better than astrology if you ask me. And always remember the motto of this blog. If lots of people are putting on the mid term election/seasonality long trade there is good chance it won't work or not work as easily as expected (down big first then up).
So is this the end? Is a bear market nigh? It could very well be but if the Fed blinks and if the US and China broker a deal to end the trade war the bull case could very well be back or at the very least there would be a rip roaring rally. I continue to remain agnostic about the market as I have been all year. I can see the risks to both the bull and bear case here but the bears are getting the upper hand. During times like this the permabears tend to come out of the woodwork and their arguments tend to look convincing when the market is declining. Don't get brainwashed by these broken-clock is right twice a day clowns. A lot of these people are just miserable fucks. This is not to say you should ignore bearish arguments....just take them with a grain of salt and be open minded to the contrary.
