Authored by Sven Henrich via NorthmanTrader.com,
Another week another Fed save as Jay Powell’s 60 minute interview aborted the market weakness from the week before resuming in a weekly market gap up which was further fueled by yet another conveniently timed false hope vaccine headline. Markets remain a Fed chase operation as the Fed’s balance sheet has now exceeded $7 trillion, an 87% increase since the summer interim lows of 2019.
Yet markets, the Nasdaq tech monolith aside, have yet again rejected at the previous technical resistance zone as the larger market has so far failed to reach the April highs. Reality is markets have played a range ping pong for the better part of the last month making little progress but seeing valuations again reach the higher end of the range at 140% market cap to GDP as now close to 39M people have lost their jobs in the past 2 months while American billionaires have gained $430B in wealth in the same time frame.
Not only do the technical divergences keep mounting the wealth inequality curve keeps exploding to ever more extremes.
When will any of this matter? To some it won’t and it doesn’t matter, as retail in particular keeps chasing the free money liquidity equation into a highly priced market with a 23 forward multiple while for others the risks keep mounting and the sustainability of the rally remains highly questionable.
Two old market adages come to mind:Markets can remain irrational for longer than one can remain solvent (trying to fade it) and don’t fight the Fed. All these things were said in January and February 2020 right before the...