What’s happened in 2022?
It’s been a tough start for equities
S&P 500: 2022 vs. the Past pic.twitter.com/bwKKibyR6c
— Michael McDonough (@M_McDonough) January 24, 2022
“The S&P 500 has dropped 11% — heading into correction territory — in the first 16 trading days of 2022 in its worst-ever start to a year, according to Bloomberg data that goes back over nine decades”@luwangnyc @emily_graffeo https://t.co/Qz8FUiJwMk pic.twitter.com/CN6gpT9y3C
— Jonathan Ferro (@FerroTV) January 24, 2022
Especially tech stocks
NASDAQ 100 is having its worst month since October 2008
[Past performance is no guarantee of future results] pic.twitter.com/1bfINUpmLr
— Liz Ann Sonders (@LizAnnSonders) January 24, 2022
On the Nasdaq exchange, 42% of stocks have now been cut in half from their 52-week highs.
Since the 2008 financial crisis, only Mar 12 – Apr 8, 2020, saw more stocks down 50% or more.
— SentimenTrader (@sentimentrader) January 21, 2022
And also a tough start for bonds
Investment-grade bonds are having their worst start to the year in at least two decades, with a loss of 2.2% since the start of the year. https://t.co/joBIdZ8gNE
— Lisa Abramowicz (@lisaabramowicz1) January 20, 2022
And volatility is rising, though from a relatively muted level
Holy moly, $SPY traded over $100b worth of shares for only second time ever (3/2/2020 was other time), which is more than top 4 stocks combined. And $QQQ smashed its record with $66b (set Fri lol). If you combine the two, they did $170b, which is all time record, here's chart: pic.twitter.com/4QfhFeAkVx
— Eric Balchunas (@EricBalchunas) January 24, 2022
VIX threatened to break 40 intraday yesterday, reaching as high as 38.94 as S&P 500 carved through a nearly 200-point range (roughly 5%) between day’s highs and lows – widest since March 2020
— Liz Ann Sonders (@LizAnnSonders) January 25, 2022
It’s been a tough couple of weeks, but also equally as strange
First time in over 20 years that the Nasdaq was up 1%+ intraday and finished down more than 1% on back to back days.
— Bespoke (@bespokeinvest) January 20, 2022
First time the Dow has reversed a 1,000+ point drop to close higher on the day.
— Bespoke (@bespokeinvest) January 24, 2022
— Bespoke (@bespokeinvest) January 21, 2022
In case you were wondering, since at least 1984, the S&P 500 has never erased 2%+ declines and finished higher two days in a row.
— Bespoke (@bespokeinvest) January 25, 2022
6th time the Nasdaq has reversed a 4%+ intraday drop to close higher (since '88).
— Bespoke (@bespokeinvest) January 24, 2022
Okay, so why is this happening?
Momentum is slowing
“Forward estimates are also trending weaker than prior COVID quarters… We expect forward earnings to be revised lower on continued margin pressure, particularly from rising wage pressure” – BofA pic.twitter.com/XFYYhbVMiR
— Sam Ro 📈 (@SamRo) January 25, 2022
— Liz Ann Sonders (@LizAnnSonders) January 19, 2022
🇺🇸Flash @IHSMarkitPMI US Composite Output Index fell to 50.8 (-6.2pt): 18-month low
⬇️Services 50.9 (-6.7pt): 18-month low
⬇️Manufacturing 55.0 (-2.7pt): 15-month low pic.twitter.com/IgcqLFlGpx
— Gregory Daco (@GregDaco) January 24, 2022
— Kathy Jones (@KathyJones) January 18, 2022
Disappointing Markit #PMIs for services are adding to the market's sour mood. The #Fed will have to balance high #inflation w/signs of slowing in the economy and downturn in risk appetite. We still see 3 #RateHikes this year and a measured approach to reducing the balance sheet pic.twitter.com/q5BAxmZ7Ds
— Kathy Jones (@KathyJones) January 24, 2022
And this is all happening while inflation remains high and yields continue to rise
US fixed income markets remain on the move. On the day, the 5-10Y part of the curve is moving the most (9-10bp).
But over the last month (21 trading days), the 2-year move is very dramatic, up >30bp, and the biggest move since the Global Financial Crisis (2009). pic.twitter.com/uxoewPbOgH
— Jens Nordvig (@jnordvig) January 18, 2022
U.S. 10-year yields are on track for their fastest monthly increase since November 2016, with traders betting the Fed will soon make its first 50bp rate hike since 2000. https://t.co/siuWDkHtFE
— Lisa Abramowicz (@lisaabramowicz1) January 19, 2022
Here’s what an optimist might say
Credit spreads aren’t showing signs of panic
On the list of other things to watch: spread between High Yield and the 10Y Tsy. At 3.1% today, up from 2.7% to start the year. Bond market not showing as much stress as equities. pic.twitter.com/sRVQQbXHDl
— Liz Young (@LizYoungStrat) January 24, 2022
And leading indicators remain high
— Richard Bernstein (@RBAdvisors) January 21, 2022
And inflation might be peaking
— Michael Kantrowitz, CFA (@MichaelKantro) January 20, 2022
You want a decent predictor of inflation in 4-6 quarters from now?
Here you go.
In May 2020, my prop G5 Credit Impulse indicator was screaming 4%+ GDP-weighted global inflation by summer 2021 – check.
Now, it's screaming 1% inflation by Q422. pic.twitter.com/ItVUyCUxdJ
— Alf (@MacroAlf) January 20, 2022
And there’s still a ton of cash out there
The liquidity hand-off from the Fed & US gov’t to corporates & consumers pushed combined consumer and corporate cash to a record $19T+, up 35% from 2019 pic.twitter.com/SiJPGqMzcZ
— Mike Zaccardi, CFA, CMT (@MikeZaccardi) January 20, 2022
And if inflation does continue higher, history says earnings might follow a similar path
CPI vs. S&P 500 NTM EPS, via Credit Suisse pic.twitter.com/KaNUC7YdKG
— Sam Ro 📈 (@SamRo) January 18, 2022
And drawdowns like this are just a part of the process
— Ben Carlson (@awealthofcs) January 25, 2022
And maybe the correction has already gone a little too far
This is a level of wipeout that has led to a rebound 100% of the time.*
* Assuming one chooses to ignore 2000-02 and 2008. pic.twitter.com/xYVDPONm1g
— SentimenTrader (@sentimentrader) January 26, 2022
Here’s what a pessimist might say
Wages are continuing to rise and are weighing on margins
"What is noteworthy about the higher labor expenses that JPMorgan, Citi, & Goldman talked about in their earnings calls is that the wage gains are now reaching the upper echelons of the pay scale and it's not just a minimum wage and leisure and hospitality influence:" @pboockvar https://t.co/qWORMIsQok
— Lisa Abramowicz (@lisaabramowicz1) January 19, 2022
LMFAOOO MCDONALDS IS STRUGGLING 😭 pic.twitter.com/Zh7wLooxg1
— kira 👾 (@kirawontmiss) January 22, 2022
— Win Smart, CFA (@WinfieldSmart) January 18, 2022
And consumer sentiment remains low
Once upon a time plummeting consumer confidence was at times a leading indicator for the direction of U.S stocks. https://t.co/2TclKWVaEp
— Avid Commentator 🇦🇺 (@AvidCommentator) January 19, 2022
And the recent action is historically not great
Today the NASDAQ reversed a >4% intraday loss to close the day higher. Here are the other times that happened and the fwd returns in x+# of days.
The main takeaway is this is bear market stuff. Not bullish.
— ʎllǝuuop ʇuǝɹq (@donnelly_brent) January 24, 2022
And the fed is set to begin tightening into an economy that is losing some momentum
Tightening into a slowdown… Déjà vu? pic.twitter.com/pczXzMVSxb
— Julien Bittel, CFA (@BittelJulien) January 22, 2022
Meanwhile, a positive development: China
Hang Seng China Enterprises Index closes above 100-DMA for the first time in nine months.
Short squeeze or start of an epic rally? pic.twitter.com/pv9D5hQ18i
— David Ingles (@DavidInglesTV) January 21, 2022
Chinese stocks listed in the US set to outperform NASDAQ for fourth week. Last time that happened was about a year and half back, well before the regulatory squeeze on Chinese tech. pic.twitter.com/o1ovWdqwSx
— David Ingles (@DavidInglesTV) January 20, 2022
China cuts benchmark interest rate -10bps to 3.70%
i.e. the 1-year LPR [Loan Prime Rate]. n.b. the PBOC also cut the 5-year loan prime rate by -5bps to 4.6%
This cements the pivot to easing: follows a -5bp cut in December last year. pic.twitter.com/jJ3KmAMg3h
— Topdown Charts (@topdowncharts) January 20, 2022
🇨🇳 Credit Impulse higher in December.
Supportive for EM vs. DM equities in ‘22. pic.twitter.com/TRBA8uAJ4j
— Julien Bittel, CFA (@BittelJulien) January 17, 2022
— Frédéric Rollin (@RollinFrederic) January 17, 2022
Charts Of The Week
"S&P 500 P/E is typically flat during 12 months around the first hike" – GS pic.twitter.com/A5KZDIJfD0
— Sam Ro 📈 (@SamRo) January 17, 2022
The amount of people applauding players changing their salary into Bitcoin as if they were heroes has been comical.
Rams WR Odell Beckham Jr., at least in the moment, provides a cautionary tale. pic.twitter.com/uW0QDdJrYy
— Darren Rovell (@darrenrovell) January 23, 2022
"We estimate that the US dollar’s appreciation over the past six months has cost us roughly $1 billion in expected 2022 revenue" $NFLX
— Jerry Capital (@JerryCap) January 20, 2022
This should make sense. Just like a bond, as the yield on the S&P has fallen, duration has risen.
— Chris D’Agnes, CFA (@ChrisDagnes) January 20, 2022
At current inflation levels, the S&P 500 P/E ratio should be much lower.
— (((The Daily Shot))) (@SoberLook) January 20, 2022
Yes, the S&P 500 is concentrated in five names. But these five names are more like 35 names. Customers use these businesses in way more than five ways. https://t.co/3PyiA8ygQy
— Sam Ro 📈 (@SamRo) January 20, 2022
The U.S. Agg. #Bond index has now seen a peak to trough decline/drawdown of -4.3%.
This is the 7th drawdown this size over the last 20+ years.
— Matthew Miskin, CFA (@matthew_miskin) January 19, 2022
— Jack Lichtenstein (@jacklich10) January 24, 2022
KC 1st & 10 at BUF 31
Q4 (0:02) H.Butker 49 yard field goal is GOOD, Center-J.Winchester, Holder-T.Townsend.
BUF 36 @ KC 36
KC: 51.3% (-106)
BUF: 48.7% (+106) pic.twitter.com/m9M7rNya8o
— NFL Win Probability Bot (@nfl_win_bot) January 24, 2022
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