Bloomberg has just made a bold call—they say the bull market ended yesterday. While stocks dropped sharply, 1.7% for the Dow, which basically eliminates all the progress they had made over the last couple of weeks, it is hard to say that it means the end of the bull market. The reason Bloomberg argues so is that the market has been stuck in a rut for three months, and yesterday, investors digested a dark survey which showed that Americans, on average, expect stocks to be lower 12 months from now, a sharp turnaround in sentiment. One portfolio manager from Stifel Nicolaus summarizes where the market is now, ”Investors have this understanding that equity markets are at lofty levels and we are in a low-return environment, so as the risk-free rate moves higher, even in a gradual manner, that becomes more of a competitive asset class”.
FINSUM: We are not particularly bearish, but do concede that if rates keep moving higher it is going to be hard for equities to do the same.
Barron’s put out a very troubling article today. The piece contends that even great earnings are not going to save the current market rout. The reason why is two part. Firstly, worries about the broader economy, and things like regulation of tech, are overwhelming the influence of strong earnings. But secondly, markets have seen these good earnings coming for a year, and have already priced them in. Therefore, strong numbers’ influence on investors is weak. In fact, the good earnings are more of a risk than a boost at the moment, as any underperformance could cause a big bout of selling.
FINSUM: This makes perfect sense to us. Everyone has seen these earnings coming from a mile away and has been betting on them for a year. They definitely have more risk than upside right now.
The Dow has not been doing so well lately. Last week it dropped to its lowest level of the year, declining further than in its worst bout of volatility in February. The reasons why are becoming harder to explain with every day of losses. While isolated flare ups used to be explained away, the situation is growing more complicated for investors. A growing risk of tech regulation, a looming trade war, higher interest rates—all are weighing on stocks. That makes the markets much more complicated and hazardous for investors, and it has become commensurately harder to make good decisions.
FINSUM: The market seems to be in a very treacherous period. Its failure to regain momentum after the fall in February seems ominous to us, and we do not see a clear end in sight.
Investors need to be on red alert today, as this is the day markets have been waiting for. US inflation data for January comes out this morning, the piece of information which will either assuage or accelerate fears about pending Fed rate hikes and a possible recession. Not only will the data affect US markets, but if inflation accelerates, it will also impact other asset classes, such as the Dollar, and by extension, emerging markets.
FINSUM: If inflation is ahead of forecasts, or looks at all strong, it will likely panic markets. If it is weak, there may be a relief rally.
The Dow experienced mild gains yesterday, with just a 40-point move higher. After so much back and forth recently, nothing could have been more welcome for many investors. The mild move begs Barron’s to ask the question of whether stocks have finally found a floor after a roller coaster two weeks. Stocks started rough, but rallied late in the day, giving signs of renewed optimism. The most interesting part was that after opening down 180 points, bids started to appear which supported the market, leading some to believe that there is actually a market clearing price in place.
FINSUM: Whatever the market did until now is immaterial in our opinion, as it is this morning that inflation data comes out, and that will ultimately be what moves markets in one direction or another.