We were at an inflated s&p at 3200 when it crashed easily to 2584 in March 2020..
To be clear, I'm not suggesting a bottom at 3200. It would merely be the next resistance line I would expect the Bulls to dig in and try and defend. It may bounce there a bit, but I do expect it to eventually fall and the rout continue. My base case is the S&P getting to 2500-1500 range.
Inflation is the game here currently.
A lot of people think the Fed cares about the stock market directly. I do not share that belief. I think they only see the stock market (and other asset classes) as second order tools to achieve their actual focus: full employment and price stability. I believe they truly are willing to inflate to ridiculous levels, or crash to rubble all asset classes as need to achieve the two metric they believe their legacy will be judged on. Volker cratered the economy into a deep recession and has been hailed as a hero for decades. Markets and assets are perfectly expendable as long as inflation is kept constrained and the job losses are not excessive. Currently, inflation is out of control and the labor market so tight that we could tolerate significant layoffs and still just return to near normal levels. That suggest to me there is no Fed "Put" in the works for the foreseeable future.
Another very important point I saw someone bring up (and I totally agree) is the effect of inflation on the USD as a reserve currency. It is a VITAL strategic interest to maintain USD as the worlds reserve currency. The gov is willing to accept any pain to protect that. If push came to shove, guys in dark suits with dark glasses will show in Powell's office to explain to him that inflation must be tamed even if it leads to undesirable job losses. It is a matter of National Security. Inflation is KRYPTONITE to a reserve currency. Even depression is preferable. That just strengthens the dollar. Actors need to feel confident they can deal in dollars and not lose value it the time it takes a contract to complete. If inflation is running out of control actors start feeling queasy about using it for international commerce. Then calls to replace the USD with a crypto backed by an averaging of multiple sovereign currencies really starts to get traction. That would be catastrophic loss of influence for the US. Maintaining the USD position as reserve currency trumps all other considerations.
There will be no Fed "Put" until inflation is tamed. They are certainly willing to crater the stock, housing, crypto markets if needed. They are probably willing to accepts quite a bit of job loss for now. Labor is tight enough they have room to maneuver there. At least until 5-6% unemployment.
IMHO. YMMV.
