I do not seek in any way to please you with my analyses. On the contrary, my intention always points to a rational, behavioral and psychological control based on facts and data widely disseminated by reputable institutions focused on the financial sector.
In this way, by exercising your now rationalized mind, you can maintain an adequate emotional balance when faced with alarming news and massive unilateral behavior.
VALUE AROUND FEDERAL RESERVE
Major seasonal movements observed in the S&P 500 are formed – intentionally or not – by tightening or loosening of the American monetary base. Above, we identify the moments in which the Federal Reserve causes in the markets: lengthening or retracting the general indices.
Every time there was a monetary “tightening”, followed by an increase, even if insignificant, in interest rates, the S&P 500 had a negative trend in the stock flow.
However, the opposite movement – positive – is also clearly noticed when the same Central Bank (FED) loosened its monetary base. Right now, despite the words to the contrary from FED members: that they will start with the taper in 2022 [currency tightening] followed by the rate hike. The Federal Reserve is still printing money and buying assets in the financial markets, literally, as shown below.
The image clearly demonstrates the consequences absorbed by the S&P 500 – and also in other markets – when the Federal Reserve maintains its monetary easing. The Black Line indicates just that, while the Blue Line depicts the S&P 500 index since 2008.
When the FED rises (Black Line), its illusory monetary creationism, whether for “debt suppression” or As assets rise, the S&P index maintains a steady and genuine rally. However, by just maintaining, or decreasing, its currency balances, the S&P 500 tends to retract sharply. It’s not magic! It is monetary creationism.
THE STORY OF THE FUTURE IS REPEATED
Therefore, despite the see-saw effect that the FED maintains on markets, the sectoral composition also absurdly influences the behavior of individuals operating in these same markets: creating momentary and permanent bubbles in determinants broadly media sectors.
Look at the image above and note that in periods of financial bubbles, some sector was always extremely overvalued.
- In 1980 the energy boom was created: those who did not have energy assets were considered crazy, or even stupid!
- In 2000, the sector technology was absolutely unanimous among the media, and consequently, among investors.
- Already in 2008, the financial and real estate boom was clearly noticed by a few investors.
- And here we are, in 2022, reviving the tech bubble once again. Now, however, with an aggravating factor: cryptoassets (I like to call it crypto-wind, because they are worthless), MetaVerse, and parallel markets. That is, everything that is composed of the words NFT or Bit, are traded at absurd prices.
RELATION: 10-YEAR TREASURE VS VARIABLE MARKET
While interest rates are practically negative and the Fed does not raise them: indicating that 10-Year Treasuries will not have high returns (Dark Blue Line). All in peace in the changing markets. This indicates that much of the cash flow is still heading to the equity markets. Assets rising dangerously: mainly for the tech sector.
As soon as the10-Year Treasury Bond starts to skyrocket: this is already happening. The Fed is certainly indicating that it will raise nominal interest rates by approximately 2% through 2023. It will certainly be painful for those unprepared individuals who follow absurd daily news, youtubers and so many other “influencers”. digital financials”.
Money flow will be mostly oriented towards Fixed Income Securities, even with a small increase in interest rates. This is because, the entire financial chain will be purged: clean.
- Funding will not be easily accepted;
- Bad payers will not be credited;
- Good payers will also have credit difficulties: and when they do, it will be very expensive to pay with higher rates;
- Indebted companies will have a high risk of bankruptcy;
- Medium companies will not be able to leverage themselves to increase their business;
- Investors , generally speaking, will also have high risk in leverage processes. Therefore, they will adopt conservative measures regarding their investments.
CAPITAL MARKET BUBBLE
The last image is just for learning: the future repeating the past. The only company that remains at the historical top, WITHOUT LATERALIZATION , is Microsoft.
Intel, GE, Cisco and Walmart continue to be great companies, however, after the 2000 bubble burst, they went through almost 10 years negatively lateralizing the price of your actions.