If you told me at the beginning of march that the following would happen:
Silicon Valley Bank fails. So do Silvergate and Signature. Another, First Republic, is also on the ropes. The fed, treasury, and FDIC have to work together to prevent a run on regional banks. And then a week later, the fed would still hike by 25 basis points.
Banks fail, fed hikes. If I had that information beforehand, I would have guessed the stock market would be down more than 10% on the month.
While regional banks are getting destroyed, down nearly 30% in March, the S&P 500 is up 1%, and the Nasdaq-100 is up a whopping 7%. I gotta be honest. I don’t get it.
The fed hiked yesterday. It was unanimous. They took rate cuts off the table and indicated that their fight with inflation is not over. Stocks understandably did not react well to Powell’s words and followed the typical post-fed playbook of bouncing and then puking into the close.
As I type, the S&P 500 is up nearly 2% on the day. I hesitate to give too much credence to short-term market gyrations, a lot of this is just noise, but getting back to what I wrote earlier, why aren’t stocks going down?
It’s hard to make a fundamental bull case for the stock market right now. Does anybody think the economy will accelerate over the next couple of quarters? Does anybody think that companies will grow their earnings per share through the rest of the year?
It’s also hard to make a bull case on valuations. Whatever your preferred metric, stocks aren’t cheap.
The only thing I can think of that’s holding this market up is that everybody agrees that things are looking risky right now. And maybe that’s enough to de-risk stocks. At least for now.
When everyone expects the market to do one thing and it does something else, I think it’s important to be openminded to the idea that maybe the market knows something that we don’t.
