Markets reflect sentiment. Plain and simple.
In 2008 when markets crashed from the housing bubble, sentiment was panic. One firm panic sold, leading to another panic selling, leading to another. Sentiment spreads like wildfire and markets are usually a good measure of what the times are like. When times are good, markets go up. When times are bad, they generally dip. As basic as it sounds, it’s the fundamental cause of most cash flow in both micro and macro economics.
Since September 2021, market sentiments have been largely negative – and that’s a reflection of how people feel about the state of the world.
Why invest money when governments can lock down businesses at their whim? Why invest when there’s talk of war? Why invest in a culture you vehemently disagree with? And given all this, who profits when the money is flowing during times like this?
Amazon stock surged during COVID lockdowns – but the rest of the market collapsed. Lockheed Martin and General Dynamics did great when news broke of Russia invading Ukraine, but the rest of the market took a hit.
Look around – shit sucks. War, pandemics, cultural backlash, inflation – and now the overall market continues to stagnate – weak men create hard times. It’s showing in the numbers:
The Dow Jones and S&P 500 both showing a general downward trend despite the ATH we’ve seen in December 2021. The volatility in these markets has bled into digital assets as well.
Bitcoin showed high volatility, especially in the last 4 weeks – and that’s saying something for a crypto asset. What looked like the start of a bull run turned into a bull trap with a ~15% dip from the local high and a near full retracement back to the average price range for 2022.
So where is the money flowing? If it’s not in fiat markets and it’s being sucked out of digital assets, where is the cash flowing?
The strength of the dollar has been on the rise despite equities taking a hit. This tells me people are resorting to saving cash while investments are getting liquidated. As political, cultural, and foreign affairs become more uncertain (and volatile), so do the markets. Why invest in risk-on assets (why invest in anything) if the world’s going to hell in a handbasket tomorrow? At least, that’s the general sentiment.
In other words: money isn’t moving. With inflation rates expected at 8.4% for March (climbing steadily every month) and the world in an uneasy state of affairs, it’s no coincidence that wages can’t keep up with the rising costs of living and the purchasing power of the dollar reach all-time-lows.
Estimates are that inflation rose at an annual rate of 8.4% last month, surpassing February’s 7.9% reading and the fastest pace since the early 1980s. The monthly rise is expected to be 1.2%. That would be a record for the recent era of low inflation.
The monthly report will reflect the full brunt of the run-up in energy prices caused by Russia’s invasion of Ukraine in late February. While the price of a barrel of oil has fallen since then to around $100 from as high as $139 and along with it the cost of a gallon of gas, that drop will not be reflected in March’s number.
I don’t expect markets to get any better anytime soon. But sentiments like these are usually the best signals for buying. As cruel as it sounds, there’s merit to the idea that “the time to buy is when there’s blood in the streets.”