I don’t want high risk. I want a cereal company with a dividend that I know is coming.
Portfolio Manager at Federated Hermes
The media is forever trying to link an event with a change in the market. Today the story is that the market is re-thinking FED Chair Powell’s 50 basis point rate hike amid his assurance about a strong economy. The markets soared Wednesday as the rate hike was announced and then gave it all back and more on Thursday, sliding over 1,000 DJIA points.
The better view is the pattern of social behavior outlined by Ralph Elliott in the 1930s. The Elliott Wave Model tracks changes in social mood via a five-step progression. A one, three, five up separated by a two and four wave down characterizes the main pattern.
Corrections take the form of a three wave A B C pattern. These progressions take place in the form of fractals, both large and small. An example is how the NASD soared from a few hundred points in 1982 to 5,000 by March 2001.
All major stock indexes peaked between November 2021 and January 2022, the DJIA being the last. That completed a five wave pattern from the 2009 lows. Now the trend is down. Wednesday was a fourth wave up, in quick fashion. And Thursday began a predictable fifth fractal wave down.
Politicians and appointed officials like Powell despise such theories preferring to believe ‘they’ are in charge of what happens. Okay Jerome, man up and take responsibility. And so we endure endless speculation about what the FED, which actually flows the short term bond market, will do.
Our opening quote explains the 25% collapse (16,250 – 12,250) in the hot NASD tech sector. Just months ago everyone was buying Netflix, Amazon, Google and other FANG stocks. Cathy Wood became an overnight sensation with her purchase of no income stocks in her ARKK fund. It has tumbled from $160 to $47.75 since February 2021, and is still falling.
We are following the 1973-74 template to a T. Then we had high energy prices, a sputtering war in Viet Nam, and increasingly unpopular president, a January stock top, and high interest rates. The result was a 50% meltdown in the DJIA from 1,050 to 577 by December 1974. Sound familiar?
Crude oil has been quite volatile and is up again as I write to $110. The administration is not going to help by relaxing regulations and taxes on the industry. So expect prices to stay in the $80-115 range. The failure of the Centrally Planned State is on display as Russian rockets fail to explode, supply lines collapse, and morale crumbles. This makes Putin even more dangerous as a guy who never admits a mistake.
Renewing near zero cost debt is going to be the next real drag on government and business. I see little to no realization this is happening. The Ten and Thirty year Treasury are now both yielding just over 3% from less than 2% two years back.
