By: Tom Gentile
on March 23rd, 2023
Yesterday, the Federal Open market Committee made the decision to raise interest rates another quarter of a point. This was in line with the majority expectations and while that should have been seen as a good thing – meaning ‘no surprise’ the equities markets sold off, especially strong the lats hour or so of trade.
The concern as we see it and will wrap up this article with is the uncertainty about the economic outlook going forward, e.g. will the regional bank crises getting fixed – how will the hot jobs market continue to impact inflationary concerns and can the Fed execute a soft landing to name a couple.
Financial Market Adages
You may have heard the phrase the markets climb a all of worry. What this says to us is markets can rally higher in price. Markets can see good news coming out on a variety of fronts and those feel-good items can bring in buyers.
All the while that goes on, there always seems to be a concern of this is great, but how long can it really last.
Another adage/phrase is Bulls take the stairs and Bears take the elevator.
This encapsulates the view that while things are deemed bullish, and buyers go to work putting their money to work they do so in a more calculated, moderately paced manner compared to when bad news hits and everyone rushes to sell their position.
The Bulls are a bit more deliberate and take their time adding to their positions over time. But when it seems things aren’t going so well the Bears quickly unload their positions and rather than selling over time the need to preserve capital overrides the mentality of being more calculated in the amount they sell and they dump larger amounts of their holdings.
For lack of a better analogy, consider how a movie theatre fills up. Some people get their early, some almost on time, some just on time and some a bit late. Eventually the movie theatre fills up.
As soon as someone yells fire! There is no getting out of the theatre in a controlled pace over time, but rather you’re likely to see everyone high tailing it to the exit all at once and all in a congested frenzy, (no matter the theatre message prior to the movie starting saying in the event of an emergency walk don’t run to the nearest exit).
Treasury Secretary Yellen and Fed Chair Powell NOT Speaking the Same Language
Chairman Powell spoke about the Fed’s decision for the rate hike and then tended to questions from many financial outlets representatives asking about what the rate hike means, what is the outlook for regional banks and if this hike will hurt those smaller banks, what about future rate hikes – will they continue and to what extent.
While the rate hike was expected and received, which should provide a sense of calm to investors he didn’t really offer too much clarity and hopes on how things will truly resolve themselves for the better.
He did try and maintain the faith and confidence of investors by saying the banking system was resilient and strong. He also made a point to say for all to hear all depositors are/would be safe.
Then Treasury Secretary Janet Yellen spoke.
Her commentary was looked at as both a contradiction to what Powell was saying and as her backtracking from what she had said prior.
Where she had previously intimated depositors in these troubled banks were to be protected, yesterday she did what was deemed a 180-degree turnaround suggesting that not all banks would be deemed important and not all depositors would be made whole. That is the time, basically 3pm US ET when the selling really accelerated.
Confusion Causes Indecision in the Markets
The two different points of view expressed from the two of them was deemed confusing.
If any of you have gone in to a buying decision situation, when you don’t have the answers you need to differentiate buying one item from another and you hear from a couple of different sales people a difference in opinion you have a hard time acting or making a decision.
The thing is with the financial markets sometimes it goes beyond indecisions and folks seem to want to take the approach let’ just sell, let things settle and make more sense and see where the sell off and prices settle and THEN we will decide if we want to start buying again.
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