Realism and Reason

Good Morning Ladies and Gentlemen

«No one left to their own devices can be rational enough to come to consistently reasonable conclusions.» (Steven Pinker)

Interest rates

Yesterday, the European Central Bank lifted its base rate by 0.75%. This move was widely expected. Next Wednesday, November 2, 2022, the next Fed meeting will occur. Again, a rate hike of 0.75 % is expected. For the following meeting on December 14, 2022, only a 0.50% hike is currently favored and priced in. The mood there has changed very recently; some two weeks ago, another rate hike of 0.75% was still priced in. This change of mind by investors has had a relieving effect on the stock markets.

Stats

The period two to three days before a Fed meeting has a positive statistical bias. Furthermore, November is one of the year’s strongest months regarding stock market performance. As a matter of fact, for the last 30 years, November, after April, has been the second-best month of the year, and since World War II, there has not been a down period for the S&P 500 in the twelve months following the mid-term elections.

What is happening to hedge strategies?

U.S. banks such as Goldman Sachs report more extensive sales of put options. At the same time, short-sold index futures are being covered. In other words, institutional equity investors seem to be smoothing out their hedges.

Conclusion

To me, all of this could build an exciting environment for a year-end rally. The risks are still there, yet they seem to be known and in the heads of market participants by now and last but not least:

Sale

People generally buy more things if they are on sale, and they buy less the more expensive they get. However, with financial assets, it is the opposite round. The cheaper they get, the fewer people are interested in them and find all the reasons to see all sorts of risks, and the more expensive they get, the more interest they attract, and risks seem almost non-existent. To me, this is flabbergasting and far away from realism and reason.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li
Many thanks, indeed!

I wish you an excellent start to the day, a great weekend, and above all and still, peace!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li