The Federal Reserve isn’t the only thing that controls the stock market, but it’s very influential.
The Fed’s about-face In mid-December 2021, I turned cautious on the market, mainly because the Fed started talking about taking accommodation away. In a series of announcements between early December 2021 and mid-January 2022, the Fed discussed ending bond purchases, raising interest rates and decreasing its balance sheet. Since then, central bankers’ hawkish actions have provided a serious headwind for the market.
By “breaks,” I mean the benchmark S&P 500 Index SPX, +0.57% falling 20%, valuations correcting to a reasonable level, a problem in the bond market or credit spreads widening too much. Keep in mind that just because the Fed is creating a difficult headwind for the market, it doesn’t mean that stocks will go straight down. In other words, when sentiment gets too negative, there will be countertrend rallies to keep the bears in check.
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Cash is NOT Trash