| | | < NOBODY knows for sure how much QT is going to affect the market.>.
I do.
Everyone agrees, QE and 0% Fed funds rate makes stocks go up. So, it follows inexorably, the opposite conditions will push stocks down. This is very simple logic, but wishful thinking and the Fallacy of Sunk Costs confuses many people.
QT has barely begun. Look at the Fed balance sheet. It is trivially below its AllTimeHigh. tradingeconomics.com
All that pain is still in front of us, with no end-point in sight.
We have a near-guarantee (repeated emphatic Fed statements) of a terminal Fed Funds rate near 4%. That is true, even if (big if) inflation is just past its peak. We have had some of that pain, but only some.
Falling real income, falling stock prices, and sharply higher mortgage rates (= falling home prices) guarantees consumers will have to reduce spending. That hasn’t happened yet.
Reduced consumer spending means lower corporate profits, and lower margins. I was expecting this last earnings season, and it mostly did not happen. But the numbers just do not add up, so record corporate profit margins will ReturnToTheMean. Again: all that pain is in front of us.
I just focus on the essential controlling variables, and ignore the noise. This makes life simple, and reduces anxiety. |
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