- Market Rallies Into The “Resistance Zone”
- MacroView: This Time Might Be Different
- Financial Planning Corner: Top Planning Questions Answered
- Sector & Market Analysis
- 401k Plan Manager
Catch Up On What You Missed Last Week
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Market Rallies Into The “Resistance Zone”
This week’s newsletter will be somewhat condensed as the bulk of our current positioning is based upon the information contained in the two reports referenced herein. The goal of this week’s letter is simply to outline the market ranges which fall within the context of our current Macroview.
With that said, let’s get to work.
In this week’s #MacroView, I reviewed the history of monetary programs and the training of investors to respond to the “ringing of the bell.”
“As each round of ‘Quantitative Easing’ was the ‘neutral stimulus,’ which was followed by the ‘potent stimulus’ of higher stock prices, Not surprisingly, after a decade of ‘ringing the bell,’ investors have been conditioned to respond accordingly.
It is worth a trip back through history to evaluate the relationship between the Fed’s monetary interventions, and the impact on asset prices.”
While the report details the history of repeated rounds of monetary stimulus to offset potential “credit events” that never occurred, the most relevant period to review is 2008, which is most akin to the situation we are currently experiencing. A credit-event coupled with a major economic recession.
“2008: March – Bear Stearns fails, mortgage defaults start to rise, credit conditions worsen, and yield spreads rise. September – Lehman fails and freezes credit markets. Asset prices decline sharply, triggering margin calls, and the Fed floods the system with liquidity. As discussed last week:”
The reality of the economic devastation begins to set in as unemployment skyrockets, consumption and investment contract, and earnings fall nearly 100% from their previous peak, as the market declines 26% into late November. It was then the Federal Reserve launched the first round of Quantitative Easing.
Stocks staged an impressive rally of almost 25% from the lows. Yes, the bull market was back! Except that it wasn’t. Over the next few months, the Fed’s liquidity was absorbed by the “gaping economic wound,” and the market fell another 28.5% to its ultimate low.”