So... its early on a Wednesday in late January 2022. My goodness time flies. I recall writing a piece on the market some six years ago as preparations were being made for the first rate hike since the Financial Crisis.
Here we are again. Rate hikes imminent. Perhaps it is different this time. Perhaps this rate hike cycle will finally cause asset prices to plunge into the abyss.
The proverbial punch bowl is being taken away.
Stocks are falling to start 2022.. why? Because the market is pricing in higher interest rates... right? Or is economic weakness incoming? Perhaps... deflation is coming just as the FED is starting to move the funds rate higher. That would spell disaster for asset prices.
No matter the excuse... and we've had countless excuses over the years to sell stocks... the market is the market and its going to do what its going to do. Since the dawn of man its being going higher. We are still a month removed from new all time highs. And yet you'd think the sky is falling. The end is near.
The fear of course is that the training wheels are finally coming off. It took that darn kid some 13 years to learn to ride a bicycle!
For the first time since the financial crisis, market participants see 2022 as the first time in over a decade that the FED doesn't have your back.
The training wheels are OFF!
But guess what, that now 17 year old kid who took 13 years to learn to ride a bicycle.... he's never moving out of your house.
Low interest rates are here to stay.
Why?
The economy can not handle more than 4-5 .25% hikes. I believe the most recent down draft for the market has just about priced that in.
Look at the stocks that have hung tight, and those that have collapsed. With the cost of capital rising, those likely to need more capital to grow, thrive, or even just survive have seen their stock prices suffer the most.
If the entire investing community knows there are likely 3-4 FED rate hikes incoming in 2022, the market, who is smarter than you, I, and most of the investment community combined, has already seen this coming.
Look at some of the moves even in early 2021. Some stocks have been in a bear market for many moons already.
This 2022 sell off has the same feel as so many others we've endured over the years. We see the same commentary from the same bears who have been calling for a stock market crash for 10 years running.
Sure its 2000 2007 1987 1929 all over again. It always is.
That kid who is being told to ride now without the training wheels... he's going to fall a few times. But he's never moving out of the house.
Easy money is here to stay. It may not be as easy as it was even last year. But its going to be enough to keep the stock market doing what its been doing since the dawn of man. Trending higher.