The extended stock values around the world, created by too much Central Bank and Government financial support, makes them prone to react to news be it bad or good in a more extreme way. As we said a couple of days back, given the liquidity often it’s a matter of switching between sectors based on the latest news trail but Black Friday turned into Red Friday as markets reacted to the news of a potentially dangerous new virus strain – now named the omicron strain. This was an dis-quieting wake-up call.
In the past we have seen dramatic V-shaped reversals, so it’s a question of being patient and waiting for what unfolds in the early part of next week. Often during holiday periods, we do see the market makers develop trap moves on low volume and low liquidity.
The other question testing markets is their belief that The Fed will step in to prevent market falls, as they have done consistently over recent years. But the new take on inflation, as represented by Powell’s acceptance statement – which referred to inflation management as a key priority suggests more limited room for manoeuvre. And horror of horrors, what if the FED does not protect investors, well then, the over cooked markets are due for a significant correction. Valuations are simply not justified on current metrics.
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