What the FED said today is exceedingly important, it’s clear they believe inflation is persistent and that likely 14 rate hike will be necessary not 7 which the market has been pricing in. Inflation will drop when equities drop, it means demand for supply has been minimized. If you own shares start working on covered calls. This will not be an easy Market but there is Money to be made if you lean into Market direction and not try to catch every Bear Market rallies.
There are 6 core markets:
- US Equities
- International Equities
- Emerging Equities
- US Bonds
- International Bonds
- Emerging Bonds
All were down end of Q1 for the first time since the 1994 and the last time the best performer (S&P) was down 4% was 1980. We have always had at least 1 up market in the 6 Core but inflation has killed all 6 of those markets. That doesn’t mean every sector or underlying died, but we need to be honest about the market we’re dealing with. (This does not include commodities which are often seen as an alternative class)
Here’s the Morning Madness!
China is stepping UP lock down, that is NOT good for supply chain and commodities. Macron will just slide to a win in France, which is good for stability in Europe.
On SPX now that we are below 4400 if we open below that will be heavy resistance. 25% of all gamma is expiring today on the SPX and SPY, which means we do NOT have a lot of longer dated options contracts which is why we’re getting these ‘vacuum’ moves from support to resistance. I mentioned yesterday we had nothing on Open Interest between the 4500 and 4400 and now we have a similar set up where we have nothing between us at the 4385 and 4300. So I am leaning bearish overall.
I already said a lot yesterday about inflation, rate hikes, and equities, so nothing has changed since 2 am in Germany. (hehe).
The Japanese Bonds and Currency situation is like the torpedo in the water that’s about to take all our legs off, so if you’re long hedge.
Now something we’ve not chatted about yet is how these credit spreads are going to seriously crush private equity and research and development, so a lot in our market landscape is going to change because of the credit spread and rate hikes, which are imperative to get inflation down. So be careful investing in companies with too much debt and low return on investment.