Its Over, page-12538

For what its worth, 2022 is and has been a tricky year to navigate markets , volatility up and down has been a feature of pretty much since the start of the year and for some traders, a nightmare because it was too easy to get blindsided.

It has been a bad bear market for a majority of stocks but the main indices are not reflecting that.

High volatility meant that we do not have a period when we see breadth in any market rally and any short term consistency in uptrend and downtrend. In other words, the market is on the edge in a rate hike environment. And we couldn't blame the markets because it has been so long since we last saw a large rate hike. While the era of equity outperformance is probably over, in the interim market participants are not yet throwing the towel just yet but they will soon be running against the strong tide of both margin and PE compression in an earnings deceleration environment going forwards.

In my view, Powell's indecision and lower resolve to stamp out inflation , in trying to balance out the adverse effects on the markets while doing something to address inflation at the same time, will allow demand to hold much longer while supply chain issues continue to persist which further fuels inflationary expectations, and in economics, it is expectation that has the effect of causing inflation to go higher (e.g buyers are afraid of higher supply prices for their goods so they buy more and ahead , with comfort on perception that demand will hold, so causes prices to rise even faster; plus hoarding will just exacerbate it). If inflation reaches double digits, it would take considerably more rate hikes and bigger ones too to bring them down. But that is what the Fed is prepared to gamble, so we do not have an adverse market event. That gamble is paving the way for an eventual stagflationary outcome possibly in 2023.

We will see tonight if the sharp US equity rise overnight can sustain with follow through buying or if it was simply a reaction to an over-pessimistic assessment of the Fed's intention in an oversold market. My belief is that unless Putin surprises us or we see an escalation in the Ukraine war, the May threats have now been averted. However, market participants will remain very wary and exuberance could still wane and remain weak and the worst thing in my view is that markets go higher but our stocks don't...market indices go higher on selected number of index weighted stocks in Flight of Quality but we continue to see weakness prevail in small and micro cap stocks , generally because the lower end of town does worse in an environment of higher interest rates, the logic being that smaller stocks have weaker financial foundation to withstand a higher cost of debt and capital, it could also be harder for them to raise capital when cost of capital rises, i.e risk premium rises for them.