Why aren’t stocks going down? The near-term landscape is full of obvious risks and precarity. Shouldn’t the market reflect the dark horizons? Sometimes, the market goes up because of good news. Sometimes, it goes up because the bad news is no worse than what investors already expected.

With a year as dismal as 2022, it’s natural to want to assign blame: inflation, the Fed, war, etc. The best and simplest answer may also be the least dramatic and fulfilling – markets fell a lot because they went up too much in the first place.

While it’s been forty years, we have seen this movie before. No one knows whether we are in the early, middle, or late innings of this inflation story. What we do know is that the Fed is enacting a cure that has been effective. Like last time, investors must endure pain while we wait for the cure to work.

The Fed actions in suppressing interest income is like Aesop’s fable where the wind and the sun try to see who can make a man remove his coat. The sun wins because the harder the wind blows the tighter the man holds onto his coat. Similarly, the more the Fed pushes rates lower, the more people save and the less they spend.