The markets are broken and have been for months. The war in Ukraine has escalated massive trade tensions all over the world, however, the circumstances that created those tensions were in place long before the shooting started.
Markets Settle Into a Slump
Zerohedge reports on the wonky behavior of several markets. The gap between VIX and JPY remains wide but has narrowed slightly. NASDAQ is underperforming the S&P but is not sagging as much as expected. Tech markets are showing signs of stress, signs that do not appear to be temporary. EPS revisions have gone negative, but not as negative as expected.
Losses Become Permanent
The general impression all these metrics give is that things have degraded across the board and that the losses are becoming permanent. Net flows into global equity have been negative for two weeks, and fixed global income has sagged for three. Industrial cycles are looking anemic, the FED is clamping down on borrowers, and investor confidence is losing steam.
Bitcoin, the so-called “freedom hedge” has once again fallen below the 40k level. The long-term trend for the better performing cryptocurrencies is about at the median point. Bitcoin has always been an on-again, off-again asset.
The general wisdom of stock investing is “buy low, sell high.” But that is not working out in today’s global economy. Key metrics are in unpredictable conditions. We are seeing frustration as dealers pursue higher sell points, only to panic sell at much lower prices than they hoped for. This new dynamic poisons all the available options, especially as liquidity remains low. The way things are going, markets could easily snap.
JPMorgan’s Quant Guru is Bullish
Despite all of this, Marko Kolanovic, JPMorgan’s Quant expert, says that the stock market is about to rebound. According to him, things could start looking better by the end of the week. This prediction has triggered a reboot of corporate buybacks.
According to Market Insider, “[…] he believes poor investor sentiment, the return of corporate buybacks, and seasonal trends will give the stock market a boost. The rally should be enough to erase last week’s losses entirely.”
Kolanovic said, “We see risks leaning toward a near-term equity rally due to weak investor sentiment, low positioning, systematic strategy buying, and oversold conditions. Last week was a peak blackout on buybacks, and the positive role of buybacks is expected to increase. These should help the market rally, and reverse recent losses.” He added that he expects inflows into equities, which he says should stabilize fixed weight portfolios.
Tech Stocks Heading for the Rocks
Despite the positive outlook for corporate earnings, tech stocks are about to be hit with a barrage of new competition as debt-fueled growth comes to a grinding halt.
According to Bank of America, the sudden influx of new players in the tech sector and the rising cost of borrowing is expected to put established tech companies on their heels. BofA analysts say these conditions, combined with the Fed’s hiking of interest rates means big tech companies will not be able to kick the can down the road the way they have grown accustomed to doing.
They say tech stocks have dropped by 14% this year.
The content streaming company, Netflix, has taken the hardest hit this year when it lost more than 10 million subscribers. That is the company’s biggest drop in subscribers in over a decade. This is due in part to the fact the company is still fighting child porn charges in some states after the controversy over the film “Cuties,” which sexualizes underage girls.
Finally, Twitter stocks dropped 9% on the same day it was announced that Elon Musk bought the social media platform. The purchase received a flood of backlash from left-wing commentators across all left-wing media outlets. But at the same time, many have expressed great enthusiasm due to the expectation that Twitter will stop the massive censorship of conservative users.
Other expectations include the strong possibility that Twitter will now crackdown on the child pornography links it allows on its platform, which will be a blow to human trafficking markets. Despite this, commentators on MSNBC, CNN, and other corporate media outlets failed to notice the positive side of the acquisition by Musk.