The January rally Powell snuffed out in a single afternoon

The January rally Powell snuffed out in a single afternoon

There is one scene that sums up the month: someone loudly announces that the sales are over and that we will be at all-time highs within a month, and a few hours later the market answers with one of those red candles people remember. The sequence is no anecdote. It is a portrait of January 2022, when half the Spanish stock market convinced itself the correction was a buying opportunity and the other half braced for blood. In between, the Federal Reserve and a border called Ukraine.

The trigger has a name: Powell. The Fed chair's testimony delivered a message the market took as a bucket of cold water. A rate hike in March, three more increases over the year, and a reduction of the Fed's balance sheet of at least 30 billion a month. With those three pieces, the tech party shut down abruptly. The Nasdaq broke through support levels, bitcoin trinc, and European indexes turned around within hours.

What exactly did Powell say, and why did it sink the Nasdaq?

The answer fits in one sentence: he said what the market already knew, but said it at the worst possible moment. A rate hike in March, three additional increases over the year, and tapering with bond purchase cuts of at least 30 billion a month. None of that was a surprise in nominal terms, but the tone and the timeline were enough for the money that had gone into the rebound to run for the exits.

Some argue the reaction was disproportionate, even artificial. The argument is that the market had already priced in those hikes and there was no new cause to justify the plunge. Others reply that the problem is not the hike itself but the combination of rising rates with an economy that was already slowing. If you raise rates to fight inflation, you freeze activity. If you do nothing, inflation keeps running wild. The dilemma has no elegant way out.

The political context adds another layer. In a US election year, the most repeated reading is that the Biden administration has no interest in seeing everything blow up. Part of the market is betting the Fed will do "something" but trivial, a halfway move that breaks nothing. The opposite bet is that inflation will grant no truce and the Fed will have to tighten more than it says.

Netflix, Nvidia and NIO: the bets that divided everyone

The shopping list discussed in those days had three proper names: Nvidia, Netflix and NIO. The buyer's thesis was simple: they are cheap, the sales are over, we will be at highs within a month. The answer from the other side was just as blunt: Netflix below 200 dollars in February, the Dow Jones at 28,200 as the lesser evil, and much more blood to come.

Nvidia got the kindest part of the analysis. Even the skeptics admitted it has solid fundamentals, even if the stock was extremely expensive. The added doubt was the ARM acquisition: if it became impossible to close, the punishment could be greater. Part of the earlier declines had already priced in that scenario, but not all of it.

Netflix drew the harshest criticism. The bearish argument was not just about price: competition from Disney+, HBO and Amazon Prime was eating into its market, and the stock still looked overvalued. The range being discussed was wide, with scenarios taking it to levels well below the 387 dollars it was trading at at the time.

NIO was the riskiest bet. The optimistic scenario talked about 40 dollars before summer. The pessimistic one, 10. The distance between the two sums up the market's mood toward growth stocks.

Ukraine: the risk nobody knew how to quantify

The other leg of the plunge was geopolitical. The buildup of Russian troops on the border with Ukraine introduced a factor of uncertainty that models cannot digest. The most repeated reading was that Pilingui would deliver a guaranteed scare, sooner or later, and that the European and NATO response would be tepid. With that picture, many chose to reduce exposure.

The history of wars offers a pattern that was cited several times: stock markets have withstood the Napoleonic wars, World War I and World War II. The nuance matters: withstanding does not miccionan no correction. In all those episodes there were prior declines and phases of volatility. The practical conclusion drawn was to expect more corrections and use them to buy good companies on sale, without rushing.

The problem is that nobody knows when the correction ends. A month with markets in ruins can be the prelude to a recovery or the appetizer for something worse. The only certainty is that uncertainty, by itself, already moves prices.

Liquidity as a strategy: the 15% that changes everything

Amid the noise, part of the market took an intermediate position: keep the portfolio, but with a liquidity cushion. The 15% in cash was cited as the comfort level. With that structure, a 10-15% correction is not alarming, it is an opportunity. The key is having built the portfolio beforehand, not reacting afterward.

That strategy has an uncomfortable logic: if everyone is scared, that is the first sign this is not going to fall. The problem is it can also be the first sign it is going to fall much further. History gives no single answer.

What was repeated was the warning about haste. Making money in a hurry usually comes at a price. The philosophy defended was to forget about technical analysis, look for good businesses at good prices and wait for valuation metrics, not daily moves. Easy to say, hard to execute when the index drops 2% in an afternoon.

The week's close that left everyone in doubt

The S&P 500 ended the week 100 basis points above where it started. It is not a rally, but it is not a plunge either. It could be the start of a channel or the last gasp before the next leg down. With rates rising, Ukraine unresolved and tech stocks in the crosshairs, the only honest conclusion is that nobody has a crystal ball. Those who bought the rebound are still waiting for their rally. Those who stayed in cash are still waiting for their correction. Both can be right. Only one will be.