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Jon Kutsmeda

April Fool

APRIL FOOL

 

So far 2022 has been a bad year to be an investor, and April was a month that added insult to injury.

US stocks adjusted for inflation (real terms) are on pace for the worst annual drop since 1974.

 

Tech led the slide lower with the NASDAQ monthly change in April the worst since 2008.

 

The sell-off is not just isolated to a few names either.

Nearly half (45%) of stocks in the index are down 50%, and almost a quarter (22%) are down a whopping 75%.

The only other times the NASDAQ experienced similar pain was during the dotcom bust (Oct 2000 – Oct 2002) and the Great Financial Crisis (Nov 2008 – April 2009).

 

Well, at least crypto is holding up as an inflation hedge … right?

 

Unfortunately, no, Bitcoin and its crypto counterparts seem to prove that they are more of a risk asset than a “store of value” as they are trading in unison with the Nasdaq.

 

Down more than 50% from its all-time highs, Bitcoin is also testing a key level of support.

 

Based on previous major bear markets, the pain “May” only be beginning for stocks.

 

However, with 85% of the S&P 500 companies crossing their 21-day moving average, there is hope the bottom is near, based on similar extremes during the era of central bank QE/QT.

 

Yet, the US Capitulation Indicator is telling a different story – one which suggests more trouble to come.

 

Stocks are not alone; it’s been an even more painful year for bonds which are headed towards the biggest loss since 1920.

In case your math brain is a little slow today, this is the worst performance for bonds in a century.

 

The Barclay’s Bond Index had its 2nd worst monthly drawdown, going all the way back to the 80’s.

 

The slump (or dump) in bonds and stocks has delivered a one-two punch, with April set to be only the fourth month since 1973 where the S&P 500 returns are down more than -5% and US Treasuries down more than -2%.

 

The Fed’s solution?

Rate Hikes.

Based on the Fed’s hawkish tone, the market has priced in more than 10 quarter-percent hikes in 2022.

With one 0.25% hike already in the books and the possibility of consecutive 75 BPS hikes on the table, there is a good chance the Fed fulfills this destiny and kills the economy in the process of trying to kill inflation.

 

Although we don’t need to wait for the Fed to announce a rate hike next week to see what damage their policies will unleash, as their forward guidance has already done the job.

 

With the rate of change in yields indicating the “biggest tightening of financial conditions ever“.

 

With the writing on the wall, why is the Fed so hell-bent on putting an end to inflation?

There policy decisions would “never” be politically driven…

 

Irrespective of their motivations, the Fed’s chances of navigating a soft-landing are pretty grim, especially after Q1 GDP was negative.

 

Someone tell Jerome Powell the market tried calling to let him know that the Fed is about to tighten into a recession, but it looks like the investor support line is disconnected.

 







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