4 Reasons Why the Worst May Not Be Over for the Market
While bulls are predicting a clearer path going forward, several headwinds loom for stocks.
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It was a classic week of volatility for the markets as investors struggled with an economic shift from worries about inflation to worries about a slowing economy. The blow-up of the yen carry trade, and the massive sale of Apple AAPL by Warren Buffett didn’t help.
After some of the worst action of the year on Monday, the bulls rebounded on Tuesday, the bears took charge again on Wednesday, and the bulls battled back on Thursday. The market ended the week with mixed action on Friday, with slightly positive breadth and weakness in the Russell 2000 IWM.
Hopeful bulls are predicting that the worst is over, but there is little hard evidence for that belief. All the indexes and many individual stocks saw failed bounces and suffered technical damage. It is going to take time for support levels to form and a foundation for upside to build.
Another problem is that earnings season is mostly over, and there isn’t much news flow to drive the action. Economic news is going to be weighed to see if it reflects economic slowing, and as we saw a week ago, poor jobs news can have a significant impact on the action.
We also need to consider the impact of negative seasonality. Market players are well aware that we are entering a period when the indexes tend to perform poorly, and that can be self-fulling to an extent. There isn’t a lot of motivation to chase entry points right now when it is well-known that September is historically the worst month of the year.
One positive has been some decent small-cap earnings reports, and I’ll be watching to see if rotational action develops again. However, we have some headwinds, which will make things difficult in the near term.
Have a great weekend. I’ll see you on Monday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
