2022 Regime Change 2023 Challenges Ahead

What a ride 2022 has been, for all the expectations coming out of 2021 post Covid (well not really) and a global economy heavily supported by global central banks and government hand outs, it seemed all the pieces were in place for a great economic recovery! Well, then reality started to settle in, INFLATION began to rear its ugly head and the reality of Trillions of government stimulus and central bank digital credits led to large spikes in goods and services pricing, not to mention supply chain issues all exacerbating the situation that much more. So the “regime change” came and the Federal Reserve led by Jerome Powell put the pedal to the metal and raised rates from 0.25% to 4.25% and counting, the fastest such rate hikes by the central bank ever:

Chart doesn’t include Dec. Rate hike to 4.25%

This is why we called this move a “regime change” because it had reversed an overly accommodative central bank who failed to recognize the inflationary fire that its zero rate regime coupled with trillions in fiscal stimulus were stoking. We aren’t sure how they failed to raise rates in 2021 which they should have, but they did and so what 2021 led to was the beginning of a year long bear market in equities. This bear market and its downward channel are both obvious in the SP500 and Nasdaq futures charts shown here:

Source: CQG, Magnelibra.com