Gutless "Hawk" Powell and Honey Badger Stock Market

The reaction to the news tells you a lot about a market.  The stock market is no longer the bear's punching bag.  Its punching back at the short sellers, who have aggressively sold bad news since the start of the year.  

On Monday, Powell reinforced his all talk, little action credentials.  The only thing that's changed from Wednesday to Monday is the SPX, which was about 200 points higher on Monday than last Wednesday.  If Powell seemed so concerned about inflation and was comfortable with hiking 50 bps, why didn't he do it last week?  He's been talking hawkish all year, but the reality is that the Fed funds rate is still 25 bps.  Its a joke. Gutless.  He's brave and will talk a tough game, but when it comes time for hawkish action, he does the bare minimum.  That's why so many are so skeptical about those Fed dot plots, which is just another way the Fed tries to act self-important, even though their forward guidance is useless.  Just 6 months ago, the Fed was predicting continuous QE and the first rate hike in 2023.  Completely wrong. 

Powell is excruciantingly slow in hiking even as he talks tough, like he's the next coming of Paul Volcker.  He made an obvious policy error, and inflation is out of control, but people still think he's doing a "good" job, because stocks are much higher over the last 2 years.  I wonder if the people who hold no stocks and are getting squeezed with higher inflation think he's done a good job.  

Anyway, on Monday, we did get a knee jerk move lower on the hawkish rhetoric from Powell, throwing around potential 50 bps hikes like Putin throws around nuclear bomb threats.  And yet the next day, the SPX squeezed higher above 4500 and even after yesterday's pullback, its still higher than pre Powell hawk talk levels on Monday.  And that's despite the bond market trading extremely weak and crude oil surging higher.  

Across that negative backdrop of weak bonds and surging oil prices, stocks are like the honey badger, they just don't care. Its been 10 days since the bottom last Monday, and the SPX has rallied almost 400 points from last week's low to this week's high.  The stock market is clearly showing that the big boys are underinvested and putting on equity exposure quickly, so as not to be left behind just in case there is a no looking back rally, which keeps grinding higher.  

There is nothing that motivates buying more than career risk, and getting destroyed by the S&P 500 while holding cash, as the market surges higher.  Even if the fundamentals don't justify buying at these levels, that doesn't matter.  Hedge funds are short term players, they can't think about the long term if they underperform so badly that they can't get to the long term if they face big redemptions.  

So considering the plentiful signs of an intermediate term bottom in stocks, continued weakness in bonds, and unreal strength in commodities, what is the plan?  Right now, the best play is to be long stocks, even if in the 2nd half of the year, I expect another waterfall decline.  The hedge funds are very underinvested, and with the strong rally in the face of bad news and bond market weakness, I can see the SPX going up to at least 4600, and perhaps even 4700 in April.  I did sell most of my longs on Friday, so I am one of those underinvested investors.  I will be looking to buy any weakness in the coming days, although I am not sure it will be coming.  

The speculation is starting to heat up as AMC and GME and other meme stock favorites are running hard, but I wouldn't consider that a contrarian signal yet.  We've had so much doom and gloom for so long, its going to take several weeks of grinding up action to get the majority back on board.  This looks like one of those extended countertrend rallies in a topping phase that tricks investors into piling back into stocks despite the deteriorating fundamentals.  Like the May to July 2000 rally, like the August to October 2007 rally (Look at a historical SPX chart to see what I mean).  

It seems to be more like 2007, mainly because investors seem more cautious and are aware of the downside risks, much more than they were in 2000.  So giving this rally a couple more months to play out, and by May or June, it should be a good spot to either get long bonds or short stocks.  UST 10 yr around 2.60% would be a very good long term level to get long, as there is a lot of resistance at that level.  Also, leading indicators are also rolling over and I doubt the Fed can get off too many more rate hikes before they start getting scared again as growth slows and they get scared of their own shadow as the 2-10 yield curve probably inverts.  But until then, stocks look like the place to be.