Stocks To The Moon, Fundamentals Be Damned

Stocks To The Moon, Fundamentals Be Damned

“Did Powell just say that the pace of Fed Funds Rate increases may slow? Let’s run stocks higher through year-end, fundamentals be damned!” I’ve never seen a more lazy equity market in my life. Fundamentals have not mattered since the COVID lockdowns and Fed policy matters far too much. The market is to blame as it got hooked on the Fed’s role as sugar daddy when it started printing money to support equity and fixed income markets in 2009 as part of the original, awful QE program. We will forever pay the price for that initial, corrupt policy decision.

  • The economy is tanking, yet the market is ripping because Fed Chair Powell suggested that the FOMC’s December meeting may result in slowing the pace of Fed Funds Rate increases (meaning we will likely get a 50 BPS increase vs. a 75 BPS increase).
  • The market is ripping as Portfolio Managers are chasing performance ahead of bonuses next month.
  • Nobody is concerned about the fact the Fed Funds Rate will not only climb into 2023, but remain elevated throughout 2023 while QT continues in the background all while the economy continues to soften as job losses mount.
  • Our view is that the Fed Funds Rate may tick down in 2H 2023, but we are not going back to 0%, 1% or 2% Fed Funds Rate in 2023 nor 2024, nor will we see a return to QE anytime soon (hopefully never).
  • Our view is that stocks will sell off in early 2023 ahead of earnings reports in January and February. Our view continues to be that the NASDAQ will bottom at 9,000 toward the end of Q1 2023 once earnings season is in the rearview mirror. Next year will not be pretty for earnings given softening demand and elevated input costs, including the cost of capital.