These bank failures are all very risky endeavors and not indicative of any problem in the normal banking system. It is even more irresponsible than usual for the financial media to be stoking fear: We are not in a financial crisis, but we can be by the end of this week if everyone sells everything and hides the cash under their mattress.
The big question is: Who expected inflation to just drop in a straight line? I doubt anyone did, but that doesn’t stop short-term traders from playing their games. Inflation has long stopped being the story for the market; The story is that the Fed raising rates will cause a recession. We believe that story is just wrong.
The market doesn’t know what to make of an optimistic Fed. So where does all this leave us? The confusion and mixed signals are really just reminders that the prudent way to make investment decisions is from the bottom-up. Markets often act strangely in the short term, but they tend to get it right over time. Powell’s optimism was the only thing that made sense last week.
Every market strategist seems to have the same outlook going into 2023: The market will struggle in the first half of the year, then rally toward the end. This groupthink alone should be taken as evidence that there is a high probability of this forecast being wrong.
‘Tis the season: it is the pre-holiday ritual known as final exams. The market has tests as well. This quarter we have rallied off of the September lows right up to the 200-day moving average. We hit that at the end of November, and since then have been negative. Getting over the 200-day moving average is a big test, and thus far the market has failed.
