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what to make of January's rally
The Nasdaq was up +14% in January. Facebook opened up +20% today (!!)
Have we turned the macro corner, or is this a dead cat bounce?
I think it’s the "Jerome Powell bounce” ...
A dead cat bounce is a short-lived rally that occurs during a larger downtrend. Temporary recoveries unsupported by fundamentals. The name 'dead cat bounce' references that even a dead cat will bounce if it falls far enough, fast enough.
In the context of January’s rally, macro fundamentals haven't changed much:
Geopolitical risk remains elevated; Layoffs are on the rise; Consumer spending is shaky; Savings rates are at a 17-year low; the Fed just raised rates (again)...
Nevertheless 'FAANG' is having a great start to the year. January gains:
22.8% - Facebook
22.5% - Amazon
16.3% - Apple
22.7% - Netflix
13.1% - Google
So, what’s going on? I think it’s four things:
Tech layoffs have re-inspired investor confidence in operating margins.
Mark Zuckerberg said yesterday “2023 is the Year of Efficiency”
Strong stock buybacks from mega-cap tech
Tech was hit uniquely hard in 2022 and due for an upward correction... see more on this in the original Thursday Thread: Beyond the Fed.
The Jerome Powell Bounce!
Many have been hard on the Fed Chair. I recall hearing the guys on the All-in Podcast (a cultural mainstay) dub him one of 2022’s biggest losers.
But this sentiment that Powell is a dope has been quickly evaporating...
In hindsight, it feels like the Fed got a lot *right* over the past 12 months. And the most recent rate hike further underscores the Fed’s measured commitment to fighting inflation – which inspires further market confidence…
This has increasingly taken the air out of a mega-short “impaired-Fed” sentiment, in turn lifting the markets with its removal.
Jerome Powell is (maybe) good!
But have we turned the corner, or is this a bounce?
I (of course) have no idea! But I sense the consumer is too tight on wages, savings, inflation, and something has to give.
But if everyone thinks we’re close to turning the corner… then stocks may in fact have already turned it...
For more on recessionary indicators and how they compare to past downturns, see Thursday Thread: the Looming Recession.
Thanks for reading! Some links for additional context below.
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