Tuesday’s market meltdown of -4% off a bad CPI print warrants both comment and context.
Here goes.
Since 1950, the market has gone down -4% in a single day 53 times. That’s 53 times out of a total of approximately 17,400 trading days. The market’s reaction Wednesday to a bad CPI print was oversized to the downside, undoing the rally of the past week. On Wednesday, 95% of the SP500 was lower in price. That rarely happens. On Wednesday, 100% of The Nasdaq was lower in price. That never happens. NEVER.
When 90-100% of stocks go down in a single day, its symptomatic of “bottoming”. 3900 remains a major level in which the SP500 must hold…but…we’ve looked at all the other times in which the market had similar flushings in the past 72 years – forward returns six months out look solid. Please reference data below.
Prices are elevated but actually going down. Tighter financial conditions and higher rates are causing such. Lumber, oil, gasoline, iron ore prices all down 20-60% in the past six months. Rent is stubbornly high but wages look tired and wanting to roll over. Rent can’t keep going up without wage growth. The next demand destruction to watch is in the labor market and such will likely happen this fall. A softening of the labor market will coincide with the Fed pausing on additional rate hikes. That moment will be the “all clear signal” for risk assets, especially now re-valued US stocks. Hold the line.
Richard Barrett
Chief Investment Officer
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