Any questions?
"The Federal Reserve's aggressive interest rate hike cycle, which kicked off in March of last year and was partly responsible for roiling the crypto market, has ended, according to several investment banks"
First off, the CPI ticked up this month, ending the longest declining streak in 40 years. In addition, the PPI ran hotter than expected. Which means that Fed rate hikes are far from over. Current GDPNow estimates put 3rd quarter GDP at a surging 4.1%. To believe the Fed is done raising rates with the core CPI at 4.7% is hyper-moronic.
And therefore it's consensus:
August 7th, 2023:
"The Federal Reserve's aggressive interest rate hike cycle, which kicked off in March of last year and was partly responsible for roiling the crypto market, has ended, according to several investment banks"
The only way the Fed's rate hike cycle has ended is if markets go into meltdown mode sooner than later.
Which gets us to the imploding Tech bubble. Since earnings season began, we've seen major reversals by Tesla, Microsoft, and now Apple. Google, Amazon, and Meta all popped after earnings but those stocks are giving up those gains as well. Now, even Nvidia is rolling over - the super star of artificial intelligence.
As we see via global semiconductor sales stats - and as warned about in the CNBC article above - artificial intelligence has yet to provide any meaningful revenues to the semiconductor industry. Here we see the market cap weighted semiconductor index with global semiconductor sales amounts, adjusted for inflation, which are lower than they were in 2018.
"Market participants are “overconfident” about their ability to predict the long-term effects of artificial intelligence, according to Mike Coop, chief investment officer at Morningstar Investment Management"
Somewhat overconfident.
All of which confirms that the two year head and shoulders top is completed. Market observers like to say that "tops are a process, not an event". I say that tops are a process followed by an event. And the event - artificial intelligence meltdown - has already begun. Additional confirmation comes via the return of meme stock speculation, which first went wild on the left shoulder back in early 2021.
This chart of the equal weight Nasdaq 100 sums it up. What we see here is a Tech sector rallying back to the same level first reached in 2021. The return of meme stock speculation. The same volume pattern (middle pane). And of course a far lower number of new highs confirming this "rally" (bottom pane). Note also that during the pandemic rally, the Fed was actively easing on an unprecedented scale. Now currently, they are tightening at the fastest pace in history on both ends of the yield curve.
What we are witnessing now is heavy distribution in the Tech sector as institutions are selling Tech to rotate back into blue chip Dow stocks. So the question on the table is whether or not the broader market can continue to rally without the Tech generals. And the answer is no. Y2K proved that the broader market can't rally without Tech.
Therefore, all we are witnessing right now is the biggest short covering rally since 1930. Fittingly, Carl Icahn - this era's most notorious short seller just exploded, due to this relentless AI driven melt-up.
Which is another sign that bears have capitulated.
All of which fool's rally has been conflated as a "victory" for small investors because short sellers have been eliminated from the market.
In summary, the artificial intelligence bubble is now imploding.
Believe it.
Or not.
