Major Stock Bear Awakening
By: Adam Hamilton, Zeal Intelligence
GoldSeek.com
Friday, 15 January 2016
The US stock markets have suffered their worst early-year losses in history in young 2016, an ominous proof that a major trend change is underway. The Fed’s new tightening cycle is already slaying recent years’ extraordinary easy-Fed-fueled stock-market levitation. Unfortunately the only possible reckoning after such a record artificial stock boost is a long-overdue major bear market that is finally awakening.
Just a month ago, the stock markets looked radically different. The Federal Reserve’s Federal Open Market Committee that sets monetary policy mustered the courage to hike rates, ending exactly 7 years of a record zero-interest-rate policy. Stock traders rejoiced, interpreting the first rate hike in 9.5 years as a sign the Fed had great confidence that the US economy was improving. So they bid stocks higher that day.
The benchmark S&P 500 stock index (SPX) surged 1.5% to 2073 the afternoon of the Fed’s first-ever ZIRP-ending rate hike. That was merely 2.7% under the SPX’s all-time record high seen just 7 months earlier in late May. Euphoric Wall Street strategists spent the next couple weeks calling for that powerful bull market in stocks to continue in 2016, with plenty of predictions for the SPX climbing another 10%+ this year.
But something snapped as this new year dawned, unleashing waves of selling. Enough stock traders worried that an anomalous stock bull fueled by the Fed’s ZIRP and quantitative-easing money printing might not fare so well without ZIRP and QE. Since that first rate hike since June 2006 was so close to the new year, they waited to 2016 to realize their big gains which delayed their taxation for an entire year.
So instead of rallying in recent weeks in line with early years’ strong upside bias on new capital inflows from pension funds and year-end bonuses, the stock markets have plunged. The SPX has lost a truly breathtaking 7.5% in 2016’s mere 8 trading days as of the middle of this week! The massive selling that is necessary to drive such a drop has been relentless yet orderly, with insufficient fear to mark a durable bottom.
As I warned last June just weeks after the SPX’s record high as euphoria reigned supreme, the Fed shift is a major stock-market risk. The US stock markets had perfectly mirrored the Fed’s increasingly-bloated balance sheet since the dawn of the wildly-unprecedented QE and ZIRP era in late 2008 in response to that year’s stock panic. Whenever the Fed was actively monetizing bonds with QE, stock markets rallied.
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