A trader at the New York Stock Exchange.
Michael M. Santiago/Getty Images
This could be the year to follow the adage: Sell in May and go away.
It was a pretty lousy holiday-shortened week. The
dropped 2.1%. The
fell 2.6%. The
Dow Jones Industrial Average
was the relative winner, slipping just 0.8%.
The reasons are pretty simple. War, inflation, disease, and the Federal Reserve’s newfound determination to put the brakes on rising prices are all ratcheting up uncertainty and hurting investor sentiment. It’s a lot to digest. Maybe it’s best just to give up—for a while.
“Markets discount three things. Earnings and rates, of course. But the third is conviction about those inputs,” says DataTrek co-founder Nicholas Colas. “It’s a fancy way of saying [the] markets hate uncertainty.”
“We’ve already got a fair amount of uncertainty,” adds Colas. “But can we really know if the 10-year [yield] stops at 3% or goes to 4%? No one knows. Not investors, not the Fed.”
Bond yields are up because the central bank is committed to slaying inflation by raising interest rates.
The Fed makes hawkish statements from time to time, but its tone now is very different than in recent years, says Brian Rauscher, Fundstrat’s head of global portfolio strategy and asset allocation. “I know it’s overly simplistic, but don’t fight the Fed,” Rauscher told clients on a conference call this past week. In other words, if the central bank says it is set on slowing the economy, believe it.
Hawkishness isn’t great news for stocks. “We’re going…