The stock market: up last week

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Volatility continues in the stock market.

Only last week the stock market closed higher. The previous week, the Dow Jones Industrial Average fell for the eighth consecutive week.

It was the longest down streak in the Dow Jones since 1932! It is important! But it should also be noted that the S&P 500 and the NASDAQ had, the previous week, fallen for seven consecutive weeks. So we finally have a week “up” to talk.

Stock prices - Last week

Stock Market – Last Week (Wall Street Journal)

And, what caused the week “up”? Well, there have been a number of earnings results, particularly in the retail sector, which have been positive for investors. Then there was a slight slowdown in inflation in April.

And, also, there was some feeling in the market that the “worst case” scenarios were over. There was a feeling that the Federal Reserve had shown the future to the market. Two more increases in the Fed’s key interest rate of 50 basis points each, and then the Fed’s decision was over.

Maybe Fed Chairman Jerome Powell was “maxing out.”

Stocks, some investors said, had fallen too far, too fast. But the question remains, has a bottom in stock prices really been reached?

I do not think so

I don’t think we’ve bottomed out. The main fear currently running through the investment community is uncertainty. I’ve been writing about this for several weeks now. We are in a period of radical uncertainty. There are a lot of known unknowns out there. But, as I’ve written elsewhere, there are also a lot of unknown unknowns.

The uncertainty we face right now is one where there are many possible outcomes that we cannot put our finger on. I mean, for example, the Russian invasion of Ukraine was an unknown unknown two months ago.

Even some of the known unknowns are difficult to understand. And the future of Covid-19? I haven’t heard a convincing argument about when this little problem will go away. And then there are the supply chain issues.

We can’t really control them. What about the shortage of baby food? What is the Fed really going to do? And so on.

There are just too many things still hanging in the wind. We see that the VIX index is now holding at a level slightly below 30.00. The University of Michigan consumer confidence index fell to its lowest level since August 2011.

And there’s more.

What happened?

The S&P 500 stock index hit its last new all-time high on January 3, 2022. Since then, it and the other two major indexes have been falling. The result of the Dow Jones is perhaps the most spectacular. Eight weeks in a row, the Dow Jones has fallen.

Dow Jones Industrial Index

Dow Jones Industrial Index (Federal Reserve)

Let’s take a look at the movement of the S&P 500 since January 3.

S&P 500 Stock Index

S&P 500 Stock Index (Federal Reserve)

This chart is particularly important because it shows how volatile the stock market has been during this market decline. And, that’s the point. Investors face the dilemma of radical uncertainty. The markets will change.

The Federal Reserve will continue to tighten its monetary policy with the possibility that the effective federal funds rate, which is currently 0.83%, approaches 3.00%, 5.00% or more. Some experts even see the effective federal funds rate reaching 8.00%.

The stock market, in my mind, will not rise in 2022 and possibly 2023. But there is a lot of uncertainty around that. What will happen in Ukraine? What will happen in China? What will happen in the Middle East? And so on.

This is my image of the future.

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