Sell ​​Wall Street: What’s Different This Time


One of all the differences that separates the current market sell-off from the past few years stands out. That is, there is no “Fed Put”, an accommodative monetary policy to support the market at this time.

Selling the market is part of the Wall Street game.

Most of them are short and shallow in a bullish trend. So they come and go, quickly creating buying opportunities for long-term investors with shopping lists for companies with solid economic fundamentals.

However, there are exceptions to this rule.

Some sells are long, deep and bearish. They stay for a while and inflict heavy losses on investors in companies with weak fundamentals. These companies will never recover to the level they traded before the sell started. As a result, market sentiment shifted from bullish to bearish as market experts try to figure out what’s different this time around.

Tastytrade’s Jim Schultz told the International Business Times that “as almost clockwork, when uncertainty increases, markets start to decline and a bull market turns into a bear market, different stories start to surface this time around.” “Whether it’s the Great Depression of 1929, Black Friday of 1987, or the COVID crisis of 2020, the support surrounding every major market decline of the last century is certainly pointing to unprecedented ruin and depression.”

What is the difference between the two types of selling?

The macroeconomic context, the conditions and circumstances in which the Wall Street game takes place.

A stable macroeconomic context of low inflation, steady economic growth and accommodative monetary policy supports a short and shallow bull market.

An unstable macroeconomic environment, including declining economic growth, rising inflation and tightening currencies, supports a bear market that could lead to a prolonged sell-off.

The current sell-off seems to be the same.

Bryan Shipley, Co-CEO and Chief Investment Officer of Arnerich Massena, said, “Today’s sell-offs are taking place amid not just one or two, but a number of serious market headwinds, which make it uniquely prominent in recent memorable sell-offs.” . , told the International Business Times. “The US Federal Reserve plans to raise interest rates in the near future to combat inflation, reducing consumer and business demand and weakening stock prices. Investors beware”

Shipley points to a number of supply-side shocks that exacerbate the macroeconomic environment, caused by the pandemic that created the energy crisis and the Russian-Ukraine war.

“In such an environment, investors will have to be careful to look for opportunities to get through this cycle,” he said.

“The current market dynamics are unlike anything we’ve seen before,” Heeten Doshi of Doshi Capital Management told International Business Times. “Markets are experiencing high inflation for the first time in 40 years from a supply shock, interest rate hikes by the Fed to curb demand to keep prices down, and a slowdown caused by the withdrawal of stimulus measures. At the beginning of the year, markets were concerned about the aggressively hawkish Fed. Now the market is adapting to a slowing consumer and economy in the face of a hawkish Fed.”

How is it different from the previous tightening cycle?

“In the past, when the Fed tried to tighten and shrink its balance sheet, it always succumbed to the market known as ‘Fed puts’,” said Doshi. “What’s different this time is that inflation is the Fed’s number one target and the Fed insists on raising rates to keep inflation under control no matter what the market adjusts.”

Is there a light at the end of the tunnel?

“The good news is that oversold markets tend to rebound even in bear markets,” Doshi said. “Even during the 2008 recession, the S&P rebounded from 5% to 15% during its decline. Overall, many indicators were signaling extreme bearishness and oversold conditions suitable for a rally. Whether this is a bear market rally or the continuation of a bull market is not yet visible.”

What is the best strategy for long-term investors?

“Given the major headwinds faced by each of these market downturns, the best option for an investor with a sufficiently long time frame would be to hold the line, add to the investment and buy the decline,” Schultz said. . “It seems like 2022 will be a really different year, especially given the novelty and novelty of cryptocurrencies and NFTs due to extreme inflation, rising interest rates and war abroad. could happen, but the ending would be exactly the same: higher … much higher.”

People are walking next to a Wall Street sign near the New York Stock Exchange (NYSE) in New York, USA on April 2, 2018. Photo: Reuters/Shannon Stapleton

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