Buying the dip failed for the first time
Large-cap quality leadership since March is signalling decelerating growth and tightening financial conditions. The Fed does expect the taper to begin this year. The surprise was the speed with which it expects to be done tapering – by mid-2022. This is about a quarter sooner than the market had been anticipating and increases the probability of a rate hike in 2H22, a clearly hawkish shift. Higher real rates should mean lower equity prices.
This would mean value over growth even as the overall equity market goes lower. This makes for a doubly difficult investment environment given how most investors are positioned. The most powerful offset to a material correction in the S&P 500 this year has been the extremely resilient buy-the-dip mentality among retail investors, a strategy that is now being challenged.
After the Evergrande dip and rally, stocks have probed lower and taken out the prior lows, making this the first time that buying the dip hasn’t worked, simultaneously violating important technical support. Investing in services over goods will work out better this quarter. Semiconductor and
tech stocks levered to the work-from-home dynamic are now fading back down to 2020 levels.
This would mean value over growth even as the overall equity market goes lower. This makes for a doubly difficult investment environment given how most investors are positioned. The most powerful offset to a material correction in the S&P 500 this year has been the extremely resilient buy-the-dip mentality among retail investors, a strategy that is now being challenged.
After the Evergrande dip and rally, stocks have probed lower and taken out the prior lows, making this the first time that buying the dip hasn’t worked, simultaneously violating important technical support. Investing in services over goods will work out better this quarter. Semiconductor and
tech stocks levered to the work-from-home dynamic are now fading back down to 2020 levels.
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