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Market Commentary

January 26, 2022
 
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Stocks closed mostly flat yesterday.  There I go again - sarcasm!  It doesn't work real well in print, does it?  :^)  Yes, the S&P 500 and Nasdaq were flat on the day but the action was anything but flat.  The Fed released their policy statement and initially the big morning rally in stocks was extended to huge levels.  The S&P was up nearly 100 points just after 2 PM ET, but that turned into a big loss and finally flat by the close.  The Press Conference afterward may have left more questions than answers because that was when things started to change, and investors are clamoring for clarity.  They didn't really get it.

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The market seems to want to rally, but the Fed put the breaks on that, -- at least for a day.  What I don't understand is why the Fed talks about raising rates but it's always later rather than now.  Why March?  Why wait?  Why announce four potential hikes through December when that could potentially change?  Perhaps incremental hikes and heads up are less impactful but now the stock market has to look forward to these projected rate hikes for months, if not years, yet they refuse to start.  It's like an open gap down below on a stock chart that you know is only a matter of time before it gets filled, so it's hard to embrace any upside with the strong possibility that it's going to come back down eventually to fill that gap. 

Fed chair Powell also admitted that inflation is worse than they anticipated.  No one is perfect but they were questioned many months ago about their "transitory" comments and they kept reiterating the "temporary" talk.  Now we get the volatility, which is great for traders and to some degree market timers, but as we've been talking about, these 12 noon ET deadlines make it very tough on us TSPers.  In recent weeks it feels like the market reverses the morning action by the close, almost every day. 

The Fed's comments also somehow took a $1500 gain in bitcoin and turned it into a $500 loss, for whatever reason, but I assume it all had to do with the dollar's rally as they reiterate their hawkish stance and tightening their policies does give the dollar some strength.  But what we see is that volatility is much higher than it has been in recent years (save the Covid crash weeks), and it could stay that way for a while while the rate hike talk permeates the market over the next year or more.

Personally, I'm OK with stocks not taking off right now since I have a lot of G-fund on my hands and I can't buy until we get our IFTs for February next week.  But I do own some stocks and have bitcoin investments that all got trashed and closed well off their highs after the Fed theatrics.  I do feel like a big relief rally is brewing, but exactly when...?

This intraday chart of yesterday's S&P 500 doesn't do justice to how volatile the action really was.  Taking the numbers away though shows a gap up open that got filled before the close, which is not atypical.  It just the size of the moves that was so crazy.

         


The Yield on the 10-year yield was up big on the hawkish talk from the Fed...

        


And the dollar was also rallying as I mentioned, and that put pricing pressure on anything trading in dollars, which is just about everything for us.

       


It's difficult to judge the internal numbers since everything was flipped on its head at 2:30 ET after the Fed Press Conference.

I'm sure there is a whole lot more for me to address, including big name earnings releases, but the main point to hammer here is that volatility is continuing to rise. We've seen some huge intraday rallies in recent days yet the S&P 500 has closed positive only once in the last 7 days, and it was just a 12-point gain.  This can be a good thing for market timers, but it also means you can get burned, especially when there are big moves after the early TSP IFT deadline, so be careful. 



The S&P 500 (C-fund) was down slightly after a major morning rally was erased by the reaction to the Fed.  The recent lows continue to hold but technically, the breakout above the 200-day EMA failed again, and that is getting money managers' attention.  Things are quite oversold and due for a bounce, but we've said that for days and intraday bounces have been failing.  It's a very risky market but the risk / reward ratio is getting a little better for the bullish side.

         


The DWCPF (small caps / S-fund) created a negative outside reversal day, as the fragile investors bailed on a big early rally.  The close was the lowest of the year for the small caps but Monday's intraday low is still holding.

         


The EFA (I-fund) rallied up just enough to fill that open gap, but that was all she wrote.  From there the gains evaporated and it ended up closing closer to the lows.  The support line actually held yesterday, so that's a good sign that the channel could hold.

           
 

BND (Bonds / F-fund) remains in a downtrend and I see no reason to mess with this fund.  I'll either use the G-fund for safety, or stocks if I want to take on some risk.  No bonds for now for me.

         


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Thanks for reading.  Hope to see you back here tomorrow.

Tom Crowley

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