2 December 2022 - Thoughts on the Market

For the past forty years investors have been trained to buy dips in the equity markets. Whenever bad news arose and the economy started to sputter, the Fed would come to the rescue, supplying ample liquidity to the banks to keep the U.S. economic machine running relatively smoothly. Stock markets would sell off and then rebound with a vengeance, making new highs before long. Investors could always rely on the Fed bailing them out once bad news emerged.

In fact, just as Pavlov’s dogs salivated every time they heard the bell ringing, investors relished the chance to buy market pullbacks on bad news, knowing that the Fed bailout was just around the corner. This de facto Fed put option on the stock market has been a sure-fire way for speculators and investors to make money for a long time. Bad news got discounted by the market so efficiently that the “bad” in bad news never really materialized, except for a fleeting moment. Instead, bad news quickly morphed into good news.