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With the recent rally in equity prices, the Fed has to be very careful on Wednesday as to the language and specific words it uses going forward.
Markets appear to be pricing in a “pivot” to a more dovish to even though the broad consensus remains a 75bp hike in rates.
In a very narrow victory (50.9% vs. 49.1%), fears of a contested election remain with no concession.
Markets seem to be calm, but questions remain over Lula’s cabinet selection, and how that might affect
commodity and energy pricing going forward.
Petrobras already downgraded by JP Morgan to “neutral” from “outperform”, citing uncertainty.
This continues the shift left in Latin America in recent elections in Columbia and Chile, where voters seem to be tossing out leaders who were in charge during the pandemic.
It’s important after a good rally (or drop) to take in the “big-picture” which oftentimes can get lost in the news of the day. Charts never lie.
Despite poor performance from big tech companies, the markets are off their lows and trending higher.
A short-term target of the 200-day moving average (blue circle) seems like where the markets want to go.
We remain in a bear market, so the longer-term trend (large arrow) is still down. Since May, markets have
refused to break the 200-day moving average, and many areas of resistance (where previous buyers looking to sell) exist.
As tech companies shrink in market capitalization, their valuations are still not compelling due to lower guidance and expectations.
The largest rallies tend to happen in “bear” markets, and we are either in for a “rollover” this week, or an extended rally in markets.
The Fed on Wednesday may be the catalyst to decide.
Most notably was Meta, which told investors to be “patient” as the company is transforming itself.
Markets to not like in long-term ideas with no current results, and the stock lost $76 Billion in market capitalization this week.
Although the US energy names have seen a rally and is the best performing sector overall (+36% for the year), European energy names have drastically underperformed.
The discount between the two groups has never been this steep in recent history
Could this be an opportunity if the winter scare ends with a surplus?
European stock multiples are near their 10-year low, if energy shortage concerns subside, this can present a fantastic opportunity.
At 11X forward multiples, they are trading at deep discounts to US names with similar global exposure.
Mutual Fund redemptions are on track to get to $1 Trillion in 2022.
The unusual combination of stock and bond underperformance helped accelerate this move into more passive instruments and cash.