Why Buy-The-Dip Just Doesn't Die

One month ago, when looking at the key lessons of 2023, we quoted BofA derivatives guru Benjamin Bowler who made one dead wrong assessment in his tour de force introspective published just two weeks before the Fed's Dec dovish pivot. Specifically, when looking at the Fed's market reaction function, Bowler was confident that current Fed chair Jerome Powell would be different from his predecessors Bernanke and Yellen, who "knowingly injected moral hazard into the system from 2013 onwards, by stepping in (even if verbally) to rescue markets from very low levels of stress" something which is clearly shown in the remarkable chart below.

Bowler noted that "this risk-minimization policy framework was born from the fear of having a financial or economic accident on their hands with no ammunition to cut when they were sitting at the lower bound of rates." There was another reason why, in late November, the BofA strategist was confident that this time would be different: core inflation was running at 4%, or double the Fed's target, compared to below-target inflation for much of the previous decade, and absent an upward revision to the Fed's target, Powell would have no choice but to keep tightening until he saw the proverbial whites of inflation's eyes. This is how the derivatives strategist put it: