According to Bennett, the S&P 500 has posted daily swings of 1% or more in over 50% of its trading sessions this year so far. If it continues at this rate, then this year will be the most volatile year since 1938. The Year of the Fire Monkey is going to bring great volatility, she says, and investors must be well-informed and prepared.
Despite poor earning and profits, the S&P has regained a lot of what it lost since its lows its February, and corporate buybacks are a huge driving factor of this. Bloomberg reported that S&P 500 constituent companies are planning to buy back as much as $165 billion in stocks in the first quarter. This is a huge contrast to a near record withdrawal by clients of mutual and exchange traded funds, which is already estimated at $40 billion.
As the buyback-inflated market is not sustainable, Bennett says the blackout period is something to be aware of. The blackout period occurs when companies stop or sharply reduce their buybacks during the first month after the end of the first quarter.
"Especially in a market where nearly everyone else is selling due to macro fears and concerns about oil and China, this blackout period can have an amplified effect on volatility," Bennett explains.
She also explains that liquidity is growingly scarce, and the damage will be much worse than in 2008 and 2009.
"In 2008, government debt was $9.5 trillion, the Fed's balance sheet stood at $850 billion, and interest rates were over 4%," Bennett says. "Today the debt is over $19 trillion, the Fed's balance sheet is $4.5 trillion, and interest rates are near zero. The Federal Reserve simply has no capacity to print more money or lower interest rates to soften the blow when the bubble bursts, and that leaves all of America, corporations and individuals alike, vulnerable to every challenge and crisis across the globe."
Like with the last time around, the Federal Reserve still has no idea what's going on or how to react. Bennett suggests Americans be prepared for the Year of the Fire Monkey and to defend their wealth against the volatility and mischief that is approaching.