Speculative excesses are being unwound as risk appetites reverse
Upward pressure on bond yields a headwind for equities
Liquidity is the lifeblood of the market and right now it is evaporating
While the Fed is musing about tapering, the market, as usual, is already in action. Upward momentum in bond yields and an economy that has soaked up liquidity have become headwinds for equities at a time when investors are already re-thinking risk appetites.
The S&P 500 is a week and a half removed from its highest weekly close on record, but many of the areas of the market that saw the biggest run-ups over the past 2+ years are in the midst of tumultuous pullbacks. After gaudy returns on the way up, investors should expect equally gaudy reversals on the way down. By way of example, the ARK Innovation ETF is more than 30% off its peak but is still up 180% since Jan 2019. Bitcoin too is 30% from its high but is still up 1000% since Jan 2019. These moves make the action in small-cap growth (15% below where it was in Jan 2021 peak but still 70% above where it was in Jan 2019) staid by comparison.
