This past weekend I received phone calls from four non-trading friends, all asking the same question: "When will stocks stop going down?" That question was immediately followed by some version of "Does the Federal Reserve want investors to lose money?"
These are friends asking these questions, so I kept the snark to a minimum and tried to provide an honest but toned-down response. But give me a break! It doesn't take a Ph.D. in economics to theorize that keeping rates at or near zero percent for years (while the economy was growing) wasn't the wisest decision the Fed could have made.
For years, while investors feasted on the Fed's zero interest rate policy (ZIRP), I listened to perma-bears on CNBC talk about the damage and pain inflicted upon savers, especially seniors. All the while, the bulls mocked naysayers for complaining about low rates. But now that the equation has flipped and equity investors are suffering, bashing the Fed has become the national pastime.
Consider this.
Over the last 20 years (2002- 2022), we've only seen the fed funds rate average (for an entire year) more than 2% for four years. For nine out of 20 years, rates averaged under 0.2%. But if we look at the 40 years before 2002, the lowest average fed funds rate for a single year was 2.71% (1962). The second-lowest rate was 3.02% (1993). The bottom line is that While Fed Chairman Jay Powell may not be the most popular guy on Wall Street at the moment, do you really believe ZIRP is a responsible way to grow an economy? I don't.
Now, none of the folks who called me are traders, so I didn't bother telling them that while I have no idea when this bear market will reach a bottom, I believe we're at or close to a tradable low. With the percentage of stocks trading above their 40-day moving average sitting near 12%, the Invesco DB US Dollar Index ETF (UUP) nearly 4.75% above its 50-day simple moving average and almost every trader I know now solidly bearish, all that's missing is a hard flush beneath the mid-June lows.
From a trading perspective, I plan to begin accumulating a position in a few ETFs, such as the Invesco QQQ Trust (QQQ) . But I'll buy small and slow because I don't have an outright buy setup.
The one caveat I'll throw out there for those who want to try and play the market for a bounce is that if you buy into this decline you are fighting the Fed. And in my nearly 25 years of trading, fighting the Fed is rarely a good long-term idea. Consequently, if you're positioning for a bounce in equities, make sure you know where your stop is before you punch the buy key.
By the way, if you're planning to attend the Web 3 Expo Oct. 10-13 at the Wynn Las Vegas, shoot me a note. I'd love to meet up, chat markets and grab a drink! You can find more details about the show here.
