IS IT DIFFERENT THIS TIME?

After an epic stock market rally run, not just the 25% S&P surge in 2021 to double prices from the Covid lows, but also the decade-plus power push has hit pause… for now.

The markets take the stairs UP, and the elevator DOWN as long built-up gains get unwound on profit-taking pullbacks.  As mentioned before, Tech has tumbled 10% from the top many times during this bull market run.

Perspective is important as the broad market barometer S&P 500 market measure made record highs in early January, just 21 days ago, and hit nearly 70 all-time peak prices in 2021. 

What changed to see the sentiment shift to selling?

Fundamentally, United States GDP growth at 5% is the best and only positive of the G-7 industrialized countries.  Most earnings are still to come over the next few weeks, with the largest investor concern not necessarily centering on present performance, but rather on worries that future guidance could damper enthusiasm.

The “Free Money” era has not ended, though rates are forecasted to rise from ZERO in March.  Futures markets are pricing in four hikes in 2022 to bring the whopping total to 1 percent for short-term rates set by the Fed.

Truth be told, that probably helps rather than hurts corporate profits because of the BILLIONS AND BILLIONS on the balance sheets that will now see a rate of return.

The futures outlook shows 2023 adding another 1% then no more rate rises in 2024 and 2025.  

So topping out at 2% is a far cry from the 20% rate of 1980 that led to a hard recession.    

Still, price action is sometimes irrational as emotion takes over.  It takes time to sort out selloffs.

In the last decade, every selloff has eventually given way to buyers, who bring it back to new higher all-time highs.   This is now a three-week drop from the top.

Past plunges ended with a test and reject of previous extreme lows with often violent reversals to the upside to force short sellers to buyback.  

From there, the bottom base in place needs to be built on and rebound to the halfway level of the fast fall.  Once that midpoint pivot of the crisis crush is eclipsed on the upside new highs have happened every time.

If past performance is indicative of future results… the “V” recovery S&P upside target at 5400 (4800 previous high plus 600 point drop) is nearly 30% up above.