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January 24, 2022

"Catastrophic" Market Crash; Are We In a New Recession?

Note: The market actually rebounded from today's lows, but the general down trend of the past week, and general pessimism for the next year, isn't fixed by a bounce off a daily low.

Here's how it looked earlier for Joey Waffle Cone:

Screenshot (1342).png


There is a "catastrophic stock market crash" unfolding.

And it might last a while.

As a week-long selloff thatís pushed major indexes down to the brink of bear-market territory intensifies, investment banks are warning clients the worst may be yet to come, with some experts warning that the S&P 500 could plunge as much as 11% more if corporate earnings continue to disappoint as the Federal Reserve begins raising interest rates.

Dragged down by a fifth straight day of steep losses in the tech sector, the S&P 500 fell nearly 4% to 4,236 Monday morning, pushing the index down more than 10% for the year, before an end-of-day surge that helped it tick up 0.4%.

A "disappointing" start to fourth-quarter earnings season could spell trouble for stocks this year, Goldman Sachs' David Kostin wrote in a Monday note, forecasting the S&P could plunge as much as 11% from Friday's close (to 3,914) if higher interest rates and the reduction in Fed stimulus push annual corporate profits down 4% from 2021.

Morgan Stanley's Michael Wilson struck a similar tone, telling clients on Monday to "hunker down for a few more months," as slowed earnings growth joins monetary policy uncertainty as primary market concerns.

"It's too early to be bullish," Wilson said, warning the S&P could plunge another 10% while pointing out the "most speculative parts" of the market have been hit the hardest, with names like Peloton down 75% in six months.

As inflation falls once the Fed starts hiking rates, Wilson says he's "most bearish" on consumer goods, apparel and housing-related stocks that have benefited from rising prices.

Kostin says some sort of catalyst--such as a slowdown in inflation--will be necessary to curb the broad-market selloff, but Goldman economists don't expect prices will cool down until the second quarter; other potential catalysts include an "extremely strong" earnings season or a Fed policy pivot.

It wasn't just Biden's spending -- it was also all the quantitative easing during the covid lockdowns, which just added to all the quantitative easing under Obama's serial Recovery Summers.

But Brandon's drunken-sailor spending spree seems to have been the last straw. The economy defied basic economic physics and somehow did not show high inflation even through all of Obama's excessive spending and constant quantitative easing from his fed chairman, leading some very stupid people to conclude, impossibly, that inflation was no longer a threat. That we were in a "post-inflationary economy" or something.

It's so stupid I can't believe I just wrote that.

But Biden throwing another couple of trillion onto the National Money Barbecue ignited high inflation which is causing the fed to raise interest rates which in turn is puncturing the speculative bubble in the market and causing it to crash.

Which may ignite another recession. A "major recession," Andy Puzder writes.

On Bloomberg, an analyst says we're headed for a "bumpy road" but predicts there won't be a recession, but suddenly the R-word is on everyone's mind.

And if there is another recession -- then what will the government and fed do? Spend more trillions? Cut interest rates again?

They've already done too much of that.

Those bullets have done been shot off already.

So we're probably going to have to just mostly ride this one out without fiscal and monetary interventions. (Conservative monetary theorists probably welcome seeing this happen.)

As Obama once said: "Never underestimate Joe Biden's ability to fuck everything up."


Cute duck via Soothsayer.





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