- Investors are being swung in different directions as volatility looks set to increase and with key stock indices reversing course on the final two days of last week before a long weekend in the U.S.
- Too early to call a bottom as much of the rebound could have been due to short covering from overly excessive bearish bets and as macro economic conditions have not changed. The war in Ukraine, China lockdowns, high commodity prices and tightening monetary policy remain risks.
Like sands through the hourglass, so are the days of our lives.
Whereas investors may look at their portfolios in years, traders are having a field day given the sheer amount of volatility, twists, and turns in markets of late.
With sentiment bearish and concerns over a recession higher than ever, delving into the minutes of the U.S. Federal Reserve’s last meeting reveal a central bank that may not be as hawkish as first advertised, emboldening investors to take bets on risk again.
Reversing weeks when everything came down, the past week saw everything rebound, from blue chips to tech stocks, the riskiest to the riskless, junk bonds to Treasuries and the benchmark S&P 500 clocking its best rally since 2020.
The only losers were the dollar and cryptocurrencies.
But calling a bottom may be premature.
Materially, nothing has changed from previous weeks.
The Russian invasion of Ukraine continues in earnest and supply chains remain snarled.
China is insistent on its zero-Covid lockdown policy and inflation is high globally.
Perhaps investors are so starved of any sense of positive news that they’ll cling on any sign the U.S. Federal Reserve won’t spark a recession through aggressive tightening.
Profits at America’s companies are coming under pressure through a combination of higher labor and material costs and there are signs that higher borrowing costs will soon slow consumption and business investment.
If nothing else, the recent relief rally could also be attributed to short covering as short sellers were forced to cover an abundance of bearish wagers that led to overshoot.
