'Scared Like Everybody Else': Stocks Go From Shaky to Unhinged

“What a difference a day makes,” said Frank Davis, senior managing director at LEK Securities. “Yesterday people were reading into the Fed’s comment seeing some predictability and stability. But now that looks like a big headfake.”

Virtually every asset is suffering from central bank-induced turmoil. The dollar, down almost 1% on the Fed day, staged a full recovery Thursday to approach a 20-year high. In fixed income, 10-year Treasury yields erased Wednesday’s slide, topping 3%.

No Help in Sight

Few are expecting the cavalry to ride in any time soon, or the plunge-protection team. The Fed has been hamstrung by inflation and needs financial conditions to tighten to help slow down the appreciation of prices for food, cars and shelter.

While Powell has repeatedly expressed confidence in achieving a soft landing in the economy, the risk of a recession is a threat investors can’t afford to ignore, according to Dennis DeBusschere, the founder of 22V Research.

“This is why every rally needs to be sold,” DeBusschere said. “Because higher risk assets mean you don’t fight inflation! You have no way out!!” he added. “Who the heck is going to step into this tape?”

In fact, 2022 is shaping up to be the most painful year for dip buyers in decades. Since January, the average drop in the S&P 500 has lasted 2.3 days, more than any year since 1984, while its returns following down sessions have been negative 0.2%. That’s the worst in 35 years.

Investors, conditioned to the success of dip buying for most of the past decade, are spooked by the new experience, exiting equity-focused funds in April at one of the fastest paces in years.

To Greg Boutle, U.S. head of equity and derivative strategy at BNP Paribas, Wednesday’s bounce was “the hallmark of bear market rally.”

“Positioning has been very defensive into this move, which to some extent could mitigate a sense of panic or forced selling,” he said. “But the price action today, it’s hard to read as anything other than problematic in the very short term.”

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