Did we already have the post-Fed sell-off?

As of yesterday morning, only 10% of the S&P 500’s names were above their 10-day moving average. This has been a reliable level for the index to bounce from and sure enough, by the close we were green.

But December’s been a disastrous month so far – the S&P lost a quick 3% and the median stock looks much worse on both the month and the full year. Yield-chase sectors like MLPs and Junk can’t find a bid for more than a few minutes and small caps have been left for dead, despite the seasonality (December is positive for small caps 80% of the time with an average gain of 3%).

BofA’s economists note that, with the big bad rate liftoff probably imminent, we may have already paid the price for it in advance:

Commencing countdown, engines on Markets are largely resigned to the idea that the Fed will finally hike rates in December, even though the past week has seen a global sell-off across asset classes. In this environment, markets would very much like to see a policy change coupled with a very soothing message from the Fed: a so-called “dovish hike.” But the market is now pricing in just 1.8 rate hikes for 2016 versus the four we expect for the December dot plot. In our view, there is a sizable risk that cross-asset expectations for a “dovish hike” may be more than the Fed can deliver through the combination of statement language, economic projections, dots and press conference remarks. That said, we don’t expect a sharp tightening of financial conditions as the overall tone from the Fed should be dovish. In addition, some of the modest risk-off market moves we anticipate may have already occurred this past week.

So, did the bears already have their say? Guess we’ll find out. As they say in sports, “That’s why they play the game.”


Bumpy and gradual
Bank of America Merrill Lynch – December 15th 2015

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