1) Update: The largest Single-day Fall (19 May 2022)
The investors were expecting a rally to happen for the following reasons
1. SP500 was about 19% down from its peak in Jan 2022. It is expected that investors will make attempt and try their best to avoid SP500 slipping to 20% which will make SP500 officially a bear market. They made 2 attempts to save Nasdaq from slipping into the bear market at end of April but failed.
2. The trading calendar was positioned as if with a purpose to "push market sentiments up". The retail sales estimation figures were in favour and Powell and many money policymakers would speak afterwards;
3. The market was down for nearly 4 months. It is about time at least for a temporary rebounce.
However, although the US market was up last night, it is expected that the present stock rally is just another bear market rally.
Why?
1. The US market was driven by "hope" mainly due to the Quantitative Easing (QE) money although some might not agree. The SP500 took off soon after Fed pumped in about 3 Trillion in March 2020. Later, Fed pumped in another 2 Trillion.
Although the companies have improved their earnings during the period, it is believed the bulk of these earning increases is spurred by the QEs rather than the market recovery. Now with the QEs about to be removed in June and the dismaying performance of earning revisions in April, it is expected that the market will remain under tremendous pressure to improve its earnings & performance going forward.
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2. The companies elsewhere are not performing as well as those in the US
3. China presently has the worse economic report card so far; its dismay performance is likely to throw a spanner into any US recovery attempts.
Chance of Fed Removing or Lighten QT?
Many investors are hoping that Fed would remove or lighten the Quantitative Tightening (QT). This is especially when Fed ended its first attempt at QT in 2019 earlier than expected because the market was not "gung-ho" about Fed's QT.
Whether Fed would insist to carry out QT this time in June is not clear but at some point and time, we know Fed will have to do QT to destroy the "printed money". This time, it might be a good window for the Fed to do so because the economy of Russia and China are all in terrible shape. And a little setback in the US economy might not look too bad or out of tune or out of the order.
In Conclusion
It is therefore expected that the US and the World market will continue to fall especially when the QT starts as scheduled in June. The only hope for a market recovery is for Fed to remove or lighten the QT policy but Fed might not want to miss the window to carry out the QT.
Update: The Largest Single-day Fall (19 May 2022)
DOW failed to break the Head and Shoulder line (H&S) last night. This caused DOW to fall more than 1,164 points or 3.57%. Although it was not the largest single-day fall since the last Great Recession (2008/2009) in terms of percentage, it was still the largest single-day fall in terms of points.
On Oct 15, 2008, DOW fell about 724 points or about 7.7% in a single-day.
Going forward, it is likely to see DOW continues to test the support level @ 31,000.
Not Officially a Bear Market
Although Nasdaq is officially in the Bear Market, it is not the case for DOW and S&P500. This is because DOW and S&P500 have never fallen below the 20% from its peak as shown in this chart.
Disclaimer: This article is for information and educational purposes. Readers are advised to conduct their own research and study to make their own investment decisions.
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