The Bears Are Scaring Away Goldilocks
The good news is that this sort of action creates some good opportunities.
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Corrective action picked up momentum on Tuesday as interest rates moved higher, fear of inflation started to build, worries about the national debt are in the headlines, and doubts grow about how aggressively the Fed will cut interest rates.
The market has been ignoring economic issues since the uptrend started in October 2023. Even a series of delays in interest rate cuts did nothing to stop the bulls, but some hot economic data finally triggered a reaction.
Part of the problem is that the market has needed corrective action for a while. Sentiment has been a bit frothy, many stocks are extended, and there has been little consolidation. The economic news makes for a convenient excuse.
While there was plenty of red on the screens today, it wasn’t that bad. Breadth was a bit greater than 3 to 1 negative, but the S&P 500 only dropped 0.6%. Small-caps were the biggest losers with the Russell 2000 dropping 1.7% but it still is well above its 50-day simple moving average.
The big question is whether the selling will gain further momentum. Every selloff like this since October has very quickly reversed, usually with money flowing into the Magnificent Seven.
Jerome Powell is speaking on Wednesday and the March jobs report is due out on Friday morning, so there will be some potential catalysts. The bulls have consistently won the data spine in recent months but the bears showed some signs of confidence today.
The good news is that this sort of action creates some good opportunities. I’m feeling optimistic about some potential buys.
Have a good evening. I’ll see you tomorrow.
