"We've got to hold on to what we've got
It doesn't make a difference if we make it or not
Woah, we're half way there
It doesn't make a difference if we make it or not
Woah, we're half way there
Woah, livin' on a prayer" – Bon Jovi
We're at a critical inflection point in the market.
The S&P 500, as you can see, has fallen back from 4,800 to 4.560 (a bit lower now) but that's only a 5% correction while the Nasdaq has fallen closer to our predicted 10% (15,000 was our goal) and the Russell has fallen from 2.400 back to 2,065 and that's 14% and no one cares what the Dow does as it's a ridiculous, price-weighted index whose movements are meaningless (yet followed closely by most of the World).
As for the Dow, it is down from 36,500 to 35,000, which is 4% so I'm fairly certain we'll be seeing the rest of that 5% drop before we're through and, more likely, a full 10% drop is ahead of us – all the way back to 32,850, which is where we were in March of last year. The Russell is 200 points BELOW where we were last March – so perhaps it's the canary in the coal mine for all of the indexes.
The Russell below 2,100 is BAD – there's no doubting that and, if it persists, we can expect the other indexes to turn BAD as well. The Russell ran up from 1,600 in November of 2020 (where it had fully recovered to 2019 highs) to 2,400 without even pausing at 2,000 to pretend to consolidate – that's why it's so weak up here. That 800-point run has 160-point pullbacks at 2,240 (weak retrace), 2,080 (strong retrace), 1,920 (strong bounce) and 1,760 (weak bounce) – so there's no support at 2,000 other than psychological so, if that breaks – expect a quick dive back to 1,920, at least.
So that's the path we're on and then we have to think about what's going to save us? The Russell took off in November of 2020, when Biden was elected because Joe was going to look out for the little guys and get us another $2Tn in stimulus, etc. That did not happen and, as of yesterday's failure on the Filibuster Reform – it's not going to happen, either. There will be no money for small business, there will be no voting rights for small business owners, there will be no campaign finance reform and there will be no saving this planet from Global Warming – the weak shall suffer and the rich will move – end of story.
So Joe Biden isn't going to save the market. Jerome Powell isn't going to save the market – he's one of the ones killing it (he has to) in order to fight off inflation, etc. That leaves Earnings – Earnings have to save the market and, fortunately, we're getting a lot of reports this week and next so let's pay attention but, so far, a lot of misses. This week already we've had misses by SCHW, FMBI, GS, SI, UCBI, BOKF, CBSH, USB, COLB, DFS, UMPQ, AAL, BKR, RF and SASR – and that's just 2.5 days of reporting.
It's about double the usual rate of misses and we'll see how the trend continues as earnings season heats up. Guidance is also very important but most companies are simply kicking that can down the road and refusing to give it, due to the "uncertainties of Omnicron". That is NOT a positive….
China saw no positives ahead of their New Year (Feb 1st) and they have already thrown in the towel and cut rates at the PBOC in order to boost housing demand for their faltering property industry. The move to push down borrowing costs follows a raft of economic data released by China on Monday that showed slowing growth in the final months of last year, as domestic consumption was hit by new Covid-19 outbreaks and turbulence in the country’s property sector weighed on sentiment.
Last month, the Communist Party’s top decision-making body, the Politburo, enshrined stability as the “top priority” for China’s economy in 2022, in a meeting chaired by Mr. Xi. On Sunday, China’s top law-enforcement body issued a rare warning about the political implications of domestic economic weakness, warning that, “with the economic downturn, some deep-seated problems may surface.” Other countries are indeed terrified of becoming another United States…
Economists at investment Bank, Nomura are worried about the rising economic and social costs of China’s zero-tolerance Covid containment strategy, as well as the weak property market and slowing export growth. They say that a much more aggressive easing policy is needed to keep the economic recovery on track.
If our Fed is tightening and China is easing, the Dollar may get stronger and that will put pressure on stocks and commodities going forward. The Dollar is also at the halfway mark – back to 102, where the market bottomed out in December of 2020.
