I’m here to make sure you don’t have a good night of sleep for the next several months. Macro economists like “David Hunter” have made bold predictions that we’re going to see a parabolic melt up to SPX $6,000 at the end of this bull market run, and I’m here to tell you why that not only won’t happen, but that we’re about to see SPY, QQQ, IWM enter a bear market.
First, we need to understand an assumption about the money supply. That is, there is NO money on the “sidelines”
For example: If I hold cash in my bank account, that money is lent out to others from the bank which is exchanged for goods and services. That exchange of cash deposited in another’s bank account which may then be used to purchase stocks, bonds, etc. The other party receives cash and places it in their bank account. (cycle repeats)
If we can assume that all of the money is fully invested (see assumption above), then what matters is the “composition of assets.”
We see this happen already when money flows from one sector to the next. It can also happen between asset classes, like stocks to bonds or vice-versa. Over the last decade, it has been a free-for-all search for yield. The FED keeping rates near 0.00% has influenced investors to purchase risk assets like equities, trading cards, jpegs, leveraged ETF’s, & other dogshit (and sometimes on margin). The point being, cash has been trash, bonds don’t provide much % interest, and the only way to grow wealth was to yolo your whole account in meme stocks.
Now that the FED has decided to shut off liquidity and begin rate hikes, there will be a huge shift in the composition of assets (not to mention, the money supply stopping/potentially reversing if the FED rolls off their balance sheet = growth in $SPX is gone). Safer assets like bonds/treasuries will have a higher % return with a lower cost of capital than growth stocks. Money will rotate from these risk assets to safer* assets. It’s not a question of “if”, but a question of “when”, and with valuations so high, you’d think its probably sooner rather than later? Who wants to be left holding the jpeg bags?
This process will have a negative impact on the overall equity market, but it will more than likely destroy 0% returning assets, growth stocks, memes, dogshit companies, etc.
Some may counter this viewpoint with: “The Economy and company earnings are the best they’ve ever been!” to which I would say, if a company is setting record profits today, is it more or less likely to post record profits next quarter?
If you don’t believe me yet, think about how $120/bn month was printed since the Covid Crash Bottom and where we are now. Ask yourself, what happens when the FED isn’t IN the market propping it up?
tldr; JPOW is the boogeyman that lives under bull’s mattresses. The stock market is not the economy. Gay bears will walk the earth again.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.