In November last year we wrote the following about the U.S.in the Confidential Report:
“…what if theis wrong about and it persists at the current high levels or even increases? September was the 5th month where inflation was above 5%. If they are wrong, then they will need to raise more rapidly. We think that this scenario…will result in a major correction fairly soon.”
That report was published on 3rd November 2021 when thehad just made a new at 4660. In the same report we said of the predicted :
“…we believe that it will be a fall of between 460 points (10%) and 920 points (20%). A 20% fall will take the index back to its lower channel line at around 3680”.
Now that scenario which we warned of is coming to pass with a vengeance. US inflation in March 2022 hit an incredible 8,5% - a massive increase from the previous month’s 7,9% and way above the 5% levels seen immediately before September 2021.
This has now prompted the new(the Fed) chairman, Jerome Powell, to warn of a 50 hike in at the May meeting of the US (MPC). At the same time the Fed is reversing its policy of (Q/E) by reducing the size of its at the rate of $95bn a month, known as (Q/T).
This shift inis very dramatic - and clearly overdue. As you would expect it is having a significant negative impact on , especially tech shares, with the S&P falling by a total of 5% in the last two days of last week. The critical question now is:
Is this still just a correction or the beginning of a bear trend?
There can be little doubt that the Fed has foolishly allowed the inflation genie out of the bottle and it is going to require an extreme effort to put it back. But, at the same time, the US economy is booming with record lowand massive s being reported by .
For example, the Teslafor the 1st quarter of 2022 beat ’ expectations by a massive 42,5% with of 322c (US). The company made of $18,76bn in that single quarter.
At the same time the US economy created 431 000 new jobs in March 2022 and the unemployment rate fell to an amazing 3,6%.
We are almost certain that good news flowing through from the economy added to S&P500 companies’ quarterly results will soon displace the current negativity on interest rates and the S&P will resume its. In fact, we have predicted that the S&P could potentially reach a new by the end of June 2022.
From aperspective the correction in the S&P now looks like this:
You can see that, until Powell’s shock announcement two s ago, the S&P was busy recovering from its “ ” low at 4170 on the 8th of March 2022 and 4173 made on the 14th March 2022.
With the unexpected downward move of the last two days, we must now consider whether the low of 4170 will be broken. We think not. In fact, we believe thathave over-reacted to Powell’s words and will probably stage a recovery this week.
What is interesting though is how completely the markets’ attention has been diverted away from the war in Ukraine. In last month’s Confidential Report, published on the 6th of April 2022, we said the following:
“…the impact of the Ukraine invasion on world markets is fading fairly rapidly. Theprice is falling back, and financial markets are turning their attention elsewhere”.
While there remains the possibility that Putin will come up with some new and unexpected strategy, it seems more probable to us that both he and Russia are operating at the edge of what they are capable. They are now facing an experienced, well-armed and highly motivated force – while their demotivated army is being supported by an economy that is being systematically destroyed.
So, what this boils down to from a’s perspective is that the correction remains a . Having said that, we should remind you to always maintain and stick to your .
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