Sign up to create alerts for Instruments,
Economic Events and content by followed authors
Free Sign Up Already have an account? Sign In
Quotes
All Instrument Types
- All Instrument Types
- Indices
- Equities
- ETFs
- Funds
- Commodities
- Currencies
- Crypto
- Bonds
- Certificates
Please try another search
💎 Access the Market Tools Trusted by Thousands of Investors Get Started
What Should You Expect From the Market in May?
www.investing.com/analysis/what-should-you-expect-from-the-market-in-may-200637626
What Should You Expect From the Market in May?
By Antonio Ferlito | Apr 28, 2023 06:19AM ET What to expect in terms of market performance in May?
The recent expansion of the monetary base following the pandemic has generated enormous liquidity in the US banking system.
When banks have too much liquidity, they can become reckless and engage in the wrong investment strategies.
This has been the situation in which Credit Suisse and many US banks have found themselves, with a fatal outcome for some of them.
Banks are trying to de-risk their loans, but to do so, they need to shorten the maturities of their loans, which means less long-term lending (mortgages).
However, it is now too late: with the arrival of the recession, the mortgages in the portfolio will lose value and this could cause a sharp decline in the market.
A worrying signals also come from consumer credit in the United States, which, as shown in the graph, is constantly decreasing.
One of the first victims, Credit Suisse, was bailed out, but failed to pay the Additional Tier 1 bonds which were considered very reliable.
Analyzing the Shiller PE ratio, an equation that measures the ratio of price to cyclically adjusted earnings, we find that the current stock market is as overvalued as it was at the height of the 1929 bubble, with readings just below the 30 threshold in both cases.
The sharp drop in First Republic's shares, down 80% this week, could make the Fed think again about a possible rate hike.
On Wednesday, they tried to get the bigger banks to buy the long-dated bonds above market value, but without success.
For this reason, it seems that the hypothesis of a pause on May 3 has become more evident.
In my view, the Fed will not slow down as history shows that rate hike breaks can lead to increases in inflation, as happened in the 1970s.
According to the Commerce Department's initial estimate, US GDP increased 1.1%, which is lower than the forecast growth of 2.0% and slower than last quarter's growth. The economy experienced a decline in private inventory investment and residential fixed investment, as well as rising imports negatively impacting growth.
The market crash will start in the US because stock prices are higher than in Europe. After that, we will also see a decline on the other side of the Atlantic.
With the market crashing, I decided to invest in the Vix, also known as the Fear Index.
It is based on options on the S&P 500 index, with which it has a negative correlation: if the S&P 500 falls sharply, the VIX rises.
My first target is 30 and according to my model in the coming quarters we will see 3700 on the S&p 500.
If you want technical and/or psychological support from me, you can google me or write a comment below the video.
Author's note:
The information and content provided on this site should not be considered as an invitation to invest in the financial markets. The Content is a personal opinion of Dr. Antonio Ferlito.
Related Articles
Are We in for a Repeat of the 70s Inflation Nightmare?
By Lance Roberts - Sep 22, 2023
15
The hit TV series “That 70s Show” aired from 1998 to 2006 and focused on six teenage friends living in Wisconsin in the late 70s. The irony was that the actors playing the...
Surging Rates Tank Stocks: Time to Watch Spreads Now
By Michael Kramer - Sep 22, 2023
3
Stocks were hammered as rates increased following hotter-than-expected initial jobless claims and the Fed’s less-than-impressive performance on September 20. The 10-year rate...
What Does Strong US Dollar, Rising Oil and China Growth Mean for...
By Daniela Hathorn - Sep 22, 2023
The US Dollar is at a 6-month high, oil is approaching $100 a barrel and China is beginning to reopen. What do all these things mean for global markets?Could we see a rebound in...
What Should You Expect From the Market in May?
Add Chart to Comment
Confirm Block
Are you sure you want to block %USER_NAME%?
By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.
%USER_NAME% was successfully added to your Block List
Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.
Report this comment
I feel that this comment is:
Comment flagged
Thank You!
Your report has been sent to our moderators for review
Add a Comment
We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
Enrich the conversation, don’t trash it.
Stay focused and on track. Only post material that’s relevant to the topic being discussed.
Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.