Despite the Russian-Ukraine war, weak bonds, a surge in Covid in Asia, worries about the supply chain, the highest inflation in 40 years, and a very gloomy market environment, the S&P 500 has bounced more than 2% over the last couple of days and is gapping up to start Wednesday.
The primary news that is driving the market in the early going is that China's financial stability and development committee has recommended that regulators should "actively introduce market-friendly policies." What is particularly notable for China stocks listed in the U.S. is that the committee actively supports the listing of shares overseas and stresses good communication with the SEC.
Alibaba Group (BABA) is trading up around 16% on the news, Baidu (BIDU) around 14%, and Nio (NIO) about 14%, and the whole group is flying after being pounded over the last few days.
That action is helping the mood, but the primary focus will be on the Fed interest-rate announcement at 2 p.m. ET. It is widely anticipated that there will be a hike of a quarter percent. With inflation running at almost 8%, the Fed has no choice, but the key will be the overall tone. There will be a series of hikes that follow but will the Ukraine crisis temper the hawkishness? Oil continues to fall, and that is one big positive, but what is the longer-term forecast for energy prices?
Bonds have been under pressure for a couple of weeks now as they price in higher interest rates and a more hawkish Fed. Have they already fully discounted the Fed's hawkishness?
There still is significant headline risk about Ukraine, and there will be much talk about further U.S. assistance as Ukraine President Zelensky addresses Congress. The world is largely aligned against Putin, but the great unknown is the amount of damage he is willing to do before he starts to negotiate seriously.
What is most notable about the market right now is that there is so much negative news, and everyone is aware of it. No one can deny the many obstacles that the market is facing, but there are signs that it has been already priced in and that buyers are starting to look for bargains.
The biggest bounces occur in the worst markets, and this is definitely a poor market. We can't be too trusting too soon, but a market that can handle this much negative news so well suggests that a bottom is forming.
