The volatility will continue

Jeromy Powell’s message is clear: Interest rates will remain high until inflation drops and stays low. that was well received by the the market as S&P500(SPX) tagged its 200 MA and tumbled right after in mid-August made the half of 2022 worst in 50 years.

If “pain” which was hinted by Jeromy Powell means job loss and lower wages, an 2% inflation targets that could be more painful as tight monetary environment will remain longer time than we thought. Based on research, a mild recession that will take about averaged 30 weeks for S&P 500 returns to recover (Table 1) from the start while a deep recession would take as long as 48 weeks with approximately 30% of market decline.

Alternately, a market chart that we used repeatedly has bored our viewers to death during our interviews at local LA Chinese media ( https://youtu.be/OIR2QE3dj4Q?t=762) could be helpful to identify if the market is going to a recession and what kind of recession will be eventually. However, at this moment, the S&P500 (SPX) broke down its 50MA and then hit the uptrend which was formed since mid-June. But the rebound was relatively weak as buying attempted to retaking its 50MA failed on Sep 2^nd with higher volume that staged a negative reversal with an engulfing pattern. Its critical to the market next a few days to identify if it has its third legs down, while SPX possibly reach its previous low which was made on June 17^th at 3636 if this short-term uptrend get breakdown (Table 2).

The summer rally was over in mid-August, while our Long-term investment portfolio declined -10.32%, made its total return to 38.37% since the inception, May 2020 (click for our latest portfolio performance report). Our Dynamic investment portfolio downed -7.31% made its total return to 1.76% since May 2020. The correlation between bitcoin (BTC) and SPX is increasing as BTC broke down its uptrend as early as August 25th. our crypto portfolio which allocates with 50% of BTC and 50% of ETH gained 29.64% since June 30^th but downed 53.95%% since March 31st. that indicated the cryptocurrency, as risk asset is more volatile, and BTC is neither a safe haven nor hedge asset. conversely, over 20% of our matured structured investments received an averaged 17% of return that shows its resilient and capable to offset the volatility risk. As the bear market is moving to the late phase, an ideal return will be eagerly anticipated for the structured investments, especially for the indices linked ones.

The failure of market regains its 50 MA shows that investors recognize we’re still not out of the woods, soaring inflation and a series of large interest rate increases by the Fed this year that remind investors that this is still a Fed driven market, the next FOMC meeting which will be held on the 20th and 21st September. While the market is now expecting another 0.75% hike which will take the top of the target range to 3.25%. in other words, the volatility continues.