18 Sep VOLATILITY IS AGAIN RISING FOR THE NASDAQ…JP MORGAN’S LATE AFTERNOON PRONOUNCEMENT
Most are searching for a catalyst for the decline in the NASDAQ. Yesterday’s prevailing reason was the Fed’s statement echoing well known COVID concerns. I ask is this not oxymoronic given that the Fed actually increased its 2020 outlook from June.
The central bank is now projecting a 3.7% contraction in 2020 as compared to a June estimate of a 6.5% drop. Growth is expected to rebound to 4.0% in 2021. The fourth quarter unemployment rate is now forecasted to be 7.6% vs 9.3% in June and 5.5% in 2021.
Regarding inflation, the PCE is now projected to rise by 1.2% in 2020 vs a 0.8% June estimate and 1.7% in 2021. Longer run fed funds rate was left unchanged at 2.5%.
I reiterate I think the decline is partially the result of an unquantified monetary policy outlook, one that would permit inflation to run above the 2% speed limit for an undefined period as the economy heals itself to full employment.
As widely discussed the deficit is exploding. Fiscal restraint is nonexistent. There are only two ways to overcome debt; restructure or growth. Can I remotely suggest the Fed is attempting to grow the country out of its mountain of debt which is increasing every day?
Money supply growth is at record 28+%, interest on excess bank reserves is close to zero, monetary velocity is accelerating. Historically these conditions are synonymous with or are conducive for inflationary growth. Will today be different?
It is widely accepted the NASDAQ is vastly over owned with a concentration in a handful of names, a concentration that is perhaps leveraged or amplified via options. A basic premise for a stock to go higher is more buyers than sellers. If everyone owns the stock, who is left to buy?
Late yesterday afternoon JP Morgan believes a major reason for the recent decline is similar to the one I have been discussing…an unquantified inflation/monetary policy target that could cause the yield to curve steepen that radically changes valuation assumptions. Such could radically hasten the trade from growth to value according to the Bank.
Speaking of buying, Saudi Arabia showed its determination to protect the oil recovery by delivering a rare public rebuke to a close ally that had been overproducing. Moreover, the Saudi Energy Minister warned anyone who is shorting oil by stating “I am going to make sure whoever gambles on this market will be ouching like hell” further commenting OPEC will be “proactive and preemptive” to support prices and “take any action necessary to do such.”
Oil closed up about 2.3%.
Last night the foreign markets were mixed. London was down 0.12%, Paris down 0.14% and Frankfurt up 0.39%. China was up 1.51%. Japan up 0.18% and Hang Sang up 0.47%.
The Dow should open mixed. Will quadruple witching hour impact the markets? The 10-year is up 6/32 to yield 0.68%.