You know the markets are having issues when support areas for major indices are treated as if they don't exist while tried and true seasonal patterns are treated with loathsome disdain by the markets.
I was expecting the markets to utilize abundant areas of support in major indices, primarily tech related, as well as the favorable seasonal setup to mount a formidable rally into year end. The fact that they haven't even made an effort is an informational nugget that shouldn't be ignored by investors.
When markets begin demonstrating such vitriol, irrespective of circumstances, there is nearly always something brewing underneath. The message to investors from the market presently is "I don't care about anything but derisking at the fastest rate possible." Indeed, we are seeing some measures of velocity to the downside that are unprecedented except for periods when we are in severe economic chaos.
The mystery, as it stands today, is that by all measures the economy is fine. This is worrisome for one and only one reason in particular: If this is how the market reacts when the economy is fine, how does the market react when the economy is actually deteriorating?
And deteriorate it will as the stock market is now 155% of GDP, this will ring throughout the economy. QE created inflation in asset prices resulting in a boost to the overall economy that is still showing up in the economy today. QT will deflate asset prices resulting in an overall contraction in the economy that will show up in the future.
Meanwhile, there's no liquidity, the Fed's balance sheet doesn't have the firepower to properly fight an economy downturn and Europe is about to start their own version of QT.
For Christmas investors are receiving a horror themed 5,000 piece jigsaw puzzle to assemble courtesy of the White House and the Fed. Enjoy.
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