Many perspectives are been shared around Friday’s sell-off. Here we share why the sell-off is not based off a serious ecomomic conditions but rather of investors tantrums.
What does a longer high rate environment means for traders?
Even when the job market is doing well, many are wondering why traders are not happy about it. With a high-interest and high US dollar environment, it means that in 2025 the cost of borrowing and leverage for investors will remain high. This sets the expectation of potential cash flow into the equity markets. Hence, traders aren’t happy about it despite strong economy conditions.
Why is this irrational?
This expectation is irrational and would be rather damaging for the equity markets in the long haul as traders are expecting a stimulus-like capital inflow into the market under low interest conditions, which usually signals negative economical conditions. And such unrealistic demands would definitely set inflation back on tracks.
Market overreaction?
Market is over anticipating and overspeculating on the number of rate cuts with the latest job report by reducing Fed’s dot plot of 2 and reducing it to 1 without any official confirmation. The mass sell-off is overdone and imaginary at best, with the market makers trying to trigger the Fed’s attention to force their own narrative for a interest rate cut.
Long-term outlook?
The long term perspective would be for the Fed to evaluate Trump politics and its impact before loosening the interest rates. Elon Musk has also stated that his DOGE team cutting of government spending would potentially bring down inflation. For the Feds to have the option to manage rate cuts in a strong economy is more pragmatic than to accommodate for lower borrowing costs in the short term for inflation to return.
Long-term equity growth for US stocks would still outpace bond yields. The irrational action of pumping bond and dollar wouldn’t last long.
Wise investors would see through the current tantrums and understand the potential returns of a strong economy. The widespread speculations and fearmonging overpower the important aspect of the US Economy being resilient and healthy. In a resilient not recession, why would you be buying US dollars instead of stocks?
This irrational sell-off isn’t grounded in the truths of a negative economic conditions, hence presents a golden window of opportunity to buy as earrning season is near, and the recent earnings calls continue to see strong growth. We expect to see huge seller remorse in the aftermath of this sell-off rampage.
Modify on 2025-01-13 18:56
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