Why the Stock Market *just* FREAKED

so why are markets falling well one of

the big reasons today has to do with

actually the bank of England so last

week we saw the bank of England report a

wonderfully juicy inflation data uh that

came in substantially higher than

expected the biggest problem with the

bank of England was specifically that

core inflation had risen substantially

and unexpectedly it was already only

moving up uh or sorry only trending down

slowly which isn't great but the

surprise move up is leading markets in

even America to start questioning uh-oh

is there a potential risk that we could

see core inflation in the United States

research and yes there is that risk so

far there are not leading indicators of

that in America but absolutely there is

that risk the bank of England is is

dealing with a lot more inflation across

the board than what to America is with

the inflation roughly twice what our

inflation levels are but take a look at

the chart here of core inflation and

what you're going to find is this chart

goes back just over 30 years and this

chart really shows you how while we

peaked out on core inflation and we

started trending down on core inflation

what ended up happening on the right

side we got this explosion of core

inflation again off to the right this

led the bank of England to just raise

rates to five percent their terminal uh

sort of equivalent of the FED funds rate

they move this up 50 basis points

instead of the expected 25. there was

only a 30 expectation that the FED uh in

England which is the Bank of England

would raise rates 50 basis points we got

50. even with only a 30 basis point

expectation here in America we would

have probably gotten some kind of Nikki

leaks a heads up warning about this uh

however now what you're getting is an

expectation that rates are going to go

from five percent uh all the way up to

potentially six or six and a quarter

percent in England as they fight

inflation that's substantially higher

than ours consider their headline

inflation rate is 8.7 and their core

inflation rate which strips out the more

volatile food and energies uh up at 7.1

percent

kind of scary not something that the

bank of England should look at likely

lately now when you look at differences

between the United States and the bank

of England

the bank of England's inflation

expectation rates are also substantially

higher than ours their inflation

expectation rates while they've come

down from about six and a quarter

percent for forward-looking inflation

expectations have only come down to just

above 5.6 percent this isn't really

enough to convince any kind of pause in

England let alone write Cuts in fact

you're going in the opposite direction

in England and it's somewhat of a

concern because again people in America

are even wondering is there a risk that

could happen here as well and yeah again

absolutely the risk is that could happen

in America and that is not something

markets are pricing in remotely right

now the largest risk we face in America

right now seems to be that oh maybe

rates will go up another quarter or two

quarters so half a percentage point that

isn't something that is even fully being

priced in right now though of course

yesterday we had a drum Powell who

reiterated the summary of economic

projections of the fomc meeting last

week and unfortunately that was

reiterating hawkishness whether that was

through some form of pact with the Hawks

over at the fed or Jerome Powell is one

of the Hawks doesn't really matter

dronepal reiterated eh if the economy

keeps booming essentially the way it is

we could be looking at one to two more

raid hikes and this could be him keeping

his optionality open or uh the economy

is doing substantially better here than

it is uh elsewhere it's also possible

right now the Market's expectations of

fed terminal rate are 5.29 which usually

what you'll do is you'll look at the

difference between where we are now five

and the upper bound five and a quarter

and you'll say okay well if we're going

to be in that range we should be at some

kind of terminal rate expectation of

5.125 we're sitting at 5.29 so that's

really a way of the market telling you

probably pricing in at least one more

hike since we're at least half of that

more than that 5.125

so at least one more uh priced in right

now if we look at the world interest

rate uh probability uh what we'll find

is we're actually now getting a sort of

newly molded shape of the curve that

shows a terminal rate in America coming

closer to

November look at this so this chart

keeps evolving it seems like on a weekly

basis we get a new version of this chart

a new manipulation of what what we

should actually expect remember that if

we go back to March we were expecting

175 basis points of cuts by the end of

the year markets have completely removed

that risk now what's really remarkable

or I mean the benefit of a potential

rate cut right it was removed by markets

we're not expecting rate Cuts now until

at least January at least according to

the world interest rate probability

chart here instead we're looking at this

could potentially be a pause here in

July followed by maybe a rate hike in

September and November and potentially

uh well I mean this is not necessarily

to say that the FED would actually hike

in November and then cut in December

while it looks that way and it's

definitely possible it's just a way of

the markets assigning probability saying

well we think we'll probably be at a

5.25 cap by December how we arrive there

is is a little distorted by the the way

these bar charts are created but anyway

what's fascinating is as we moved from

March to now here in you know June about

what three months and a week after the

banking crisis what we've actually seen

happen is we've seen these terminal rate

expectations move up and we've seen rate

Cuts get unpriced and the market went

basically straight up

so why then is the market falling well I

think it has a lot more to do with two

real fears one fear being oh my gosh if

core inflation can Skyrocket like it

just did in England then maybe that

could happen in America as well if that

happens the fed's not going to be

talking about one or two more rate hikes

they're going to be talking about one or

two more percentage points which

basically would be four to eight more

rate hikes if we had that sort of

disanchoring of inflation here in

America that is which we don't and again

no leading indicators of that now but

who knows maybe there were plenty of

leading indicators as sort of a Black

Swan in England as well although they're

not as easy to identify even now more

importantly is

this fear of okay well if the Market's

already run this much maybe now it's

time to begin hedging and that is some

of what uh talk you've seen over the

last uh probably about 10 days really

pick up a lot especially after last

week's Opex and part of that could be

contributing to some of the pullback

that we're seeing now is that hey maybe

now it's officially a good time to start

hedging and uh stop contributing to sort

of the bull run if you will take a look

at uh What uh we had from this is from

Goldman Sachs

just uh Tuesday morning

Tuesday morning before the red actually

started coming into the market these

kind of discussion pieces were starting

to get more normal that is hey look

there's a limit to how high we think the

S P 500 can realistically go this year

are we really going to hit all-time new

highs by the end of the year

it seems like uh seems a little bit of a

like a stretch right and so Goldman

Sachs gave the s p maybe another three

percent run by the end of the year

and while recent data is indicating that

this inflation is underway maybe maybe

we've over extended a little bit

especially with uh forward EPs and price

to earnings looking a little bit

historically stretched for example if

you break this down into five particular

reasons uh you can see here positioning

is no longer a Tailwind for the US this

would be uh maybe not necessarily based

on uh the the shares or the level of

underweight or overweight people

actually are but rather this positioning

of hey um we're becoming bullish right

it's the sentiment positioning and then

you've got equities already pricing in

optimistic economic growth that is

definitely happening especially in the

software space in my opinion where

you're getting these these beliefs that

artificial intelligence is going to lead

to this massive amount of profit for

software I I'm not convinced of that I I

do think the chip investments will

continue to do very very well but I'm

not convinced of those software

Investments Equity valuations elevated

versus history In fairness this does

compare to a trailing p e ratio though

which generally isn't the best idea

since of course we've had lower earnings

over the last uh 12 months the narrow

Market breadth or rally is is another

way I mean the narrow Market rally is

one way of saying breadth has been very

very narrow that's basically in English

hey man uh hook them out of the S P 500

there are only seven stocks that are

basically carrying ninety percent of the

returns so you're getting more of this

concern that uh wait a minute uh we're

starting to get a little crowded on the

bowl side

you know it was just what maybe Friday

or so that I was making jokes about how

uh you know it's starting to it's

starting to feel like if the Bears are

coming to flip over to the Bulls is it

time to become a bear again now I I

don't actually think it's time to uh be

you know longer term bearish here uh but

I would expect some form of short-term

volatility much like what we've gotten

honestly I expected this volatility a

lot earlier so I was wrong about that I

thought the volatility would have come

much sooner than now as we've talked

about regularly here at Nike Swoosh in a

volatile format right a volatile Nike

Swoosh now I'll show you where we sit

with the with the TA right now a quick

reminder June 30th write it down price

is going up new lectures coming out for

the programs I'm building your wealth

link down below once again going through

adding a bunch of value uh we're

actually going through all of the old

lectures and what we're doing is we're

adding sort of spliced in lectures which

is really cool about that we've done

this in the past before and so you kind

of get Kevin over the the time frames

which is really neat because we can look

at okay here's strategies that work in

various different markets so it's really

really neat and the new lectures are

going to be really incredible so stay

tuned for those those will be fun but

anyway Let's uh and check those links

out down below and of course email staff

at meet kevin.com if you'd like to

bundle up so look at the uh NASDAQ here

the NASDAQ really got rejected in your

78 tier here by the on the Fibonacci

levels this is probably quite frankly to

be expected I mean first of all it's

very very normal in this sort of space

of the volatile Nike Swoosh for us to

have a rejection on the fibs in fact

we've basically always gone back to the

prior FIB levels

and with the exception of the bottom one

here which I suppose you could argue we

got rejected before we ever really broke

out

um consistently we got rejected so I

suppose maybe not even without the

without that uh exception as you can see

we get rejected here what we try to

break through three times couldn't hold

it come back down to the lower FIB

finally break through get rejected back

down to the lower fit we break through

we magnet to the bottom I like calling

it the magnet we magnet to the lower FIB

uh we don't actually break all the way

through again which is nice uh but then

once once we're done magneting we break

through again and then we have this

smaller pullback breakthrough smaller

pullback breakthrough now now we're

getting that rejection over here at 373

which honestly like if you just look at

the year we've had so far even though it

hasn't felt terribly volatile it's very

very normal for you to get rejected on

these technical levels I mean especially

if you look at a stock like Tesla just

from a technical basis this is let's

just put it straight ridiculous and when

we look at a trend we we are also

getting actually you know what we could

probably go let's see here let's let's

do a quick Trend here let's grab here uh

all right yeah there we go come on weebs

oh you know when you do it on a on a

MacBook it's kind of funny because it

doesn't necessarily implicate all your

pushes there we go oh look at this this

is actually really interesting so if I

draw somewhat of a lower support here

and what I was grabbing is trying to get

this trend right here this is a support

this uh this trend that you had in March

you're kind of getting rejected at

exactly that level almost look at that

you can't break through here and uh

we're ending the days getting rejected

by these average candlesticks obviously

yesterday was red and today's Red so

these candles will really start coming

down uh on on this um uh average

Candlestick view but but anyway this is

this is

reasonable you would expect some kind of

retracement it's just not normal

otherwise uh even uh in the software

plays right you look at a C3 AI uh

you're starting to get you know I mean

yesterday you had a down 9.6 day so so

some of this is is expected

uh now uh with that said is is this like

is it time to sell is it time to run

away uh you know those questions have

been coming up uh is it time to hedge I

mean hedging for most I would say uh

individual investors uh can and going

into longer Bull Run periods be quite

expensive if you're in an era like uh

2010 to 2020 quite frankly hedging's

very very expensive because you're

you're hedging maybe like an election or

uh the European sovereign debt crisis or

or these smaller events but it's really

costing you uh returns over a longer

period of time obviously we're just now

coming out of the pain of 2022 and it's

still questionable as to are we going to

go into recession or not so of course

there's more of a reason to potentially

hedge now than there was uh during that

decade of 2010 to 2012 2020. that said

has has anything fundamentally really

changed no but that can also be said for

the upside right I mean yeah we've been

on more of a trend of disinflation wage

growth is falling inflation expectations

are stable to the low side there are

2.17 right now sure maybe we'll get

another raid hike or two but really that

bank of England shock is is creating a

lot of fear right now that hey what if

that could happen in America well then

you would want to be aptly hedged if

that could happen in America which

obviously would be quite concerning to

see inflation disancher the way it did

in uh in England so that said we also

haven't gotten earnings to really

substantiate this artificial

intelligence hope even for the chip

sector as much as I'm bullish on the

chip sector versus software it's worth

considering these orders are going to

take a long freaking time to come in uh

and and to actually fulfill it's one

thing to say hey we've got an artificial

intelligence boom and and Intel's like

yay we're going to spend 30 billion

dollars in Germany and 25 billion

dollars in Israel great but you have to

also remember who's going to pay for

that well the government might pay 30 to

40 percent of it but otherwise Intel has

to pay for it out of well their cash

flow and these are very very expensive

much like with Tesla has said in the

past I'll say it again Tesla might have

to raise money because they are spending

a lot and I don't I'm not convinced that

they're going to be free cash flow

positive uh going into this next quarter

and so the next quarter's earnings are

going to start becoming a catalyst for

short-term trading and short-term

hedging so I think when you put all of

these pieces of the puzzle together uh

we're not really concerned about okay is

it another 25 or 50 maybe a little bit I

think we're much more concerned about D

anchored inflation we're much more

concerned about uh maybe too much of a

pull forward for this artificial

intelligence productivity boom whether

that's through chips or software or

otherwise and concerned about this lack

of breath this this shallowness that

we've gotten in uh in the market as well

as the fact that hey

had retracements this could be another

retracement so personally for me I look

at this and I say as long as I'm not

seeing fundamental red flags that we're

getting a Paul volcker coming our way

which to some extent maybe the bank of

England is I'm not horribly concerned

about writing a Fibonacci retracement

here it's more of a okay let the

retracement play out

that probably becomes somewhat of a by

the dip opportunity if you're optimistic

on inflation and optimistic on our

ability to avoid a recession obviously

if you're pessimistic it's great because

now you know this might give you an

opportunity to profit a little bit on

shorts or Hedges so those are those are

my thoughts on basically exactly what's

going on in the market and I wouldn't be

surprised for this to really take

through earnings to to play out which to

some extent if

you start getting

retracement now maybe you sort of

pre-punish Q2 earnings that's happened

in previous Cycles before where the pain

comes right before earnings and then all

of a sudden companies report earnings

and people like that's not that bad and

then you get this sort of new energy uh

into a rally and that could push

potentially push you to the next level

so again obviously who knows I mean

we're trying to make educated guesses on

what's happening but that's really what

they are because that's the beauty about

the stock market we don't have all the

answers now I want you to know this when

it comes to AI time is what's going to

make you money and if you can prove that

value to an employer you'll always be

able to be employed so this is another

way of making sure that you don't get

replaced but

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