Eye of the storm?

bdgan

Well-Known Member
May 29, 2008
61,914
38,842
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Thanks Joe!

After suffering the worst six-month loss in over 50 years the S&P 500 and other indexes stabilized and then rallied for two months only to face more volatility to the downside. It’s very likely that the downturn we have been experiencing will get much worse and the bear market is likely not over.

  1. Housing has been a major driver of economic growth over the past two years but now appears to be slowing dramatically due to recent rate hikes, according to InvesTech Research.
  2. The National Association of Home Builders reported that both the Builder Confidence Survey and the Traffic of Prospective Buyers Survey continue to crater as rising home prices and decade high mortgage rates are keeping potential buyers on the sidelines. The association went on to state that conditions have gotten so bad that we’re now in a “housing recession,” which could seriously contribute to the depth and duration of an economic recession.
  3. The2-year versus 10-year Treasury yield curve recently inverted once again, meaning that the shorter-term investment is actually yielding more than the longer-term investment. Historically this inversion signals a recession. The last time it inverted this much was the year 2000 after which the S&P 500 fell another 48.1% to the eventual bottom. Of course, it doesn’t mean it will play out the same way this time but investors who ignore such a red flag do so at their own peril.
  4. The University of Michigan Consumer Sentiment Index hit a reading of 50 in June which was a “70-year low,” and it’s still hovering around that level. The average reading is close to 90 and every time it has dropped anywhere near current levels since 1964, it has always been accompanied by a recession. In spite of positive reassurances from economists and Fed officials this would historically cement any question as to whether or not we are in a recession.
  5. Also keep in mind that aggressive rate hikes by the Fed have historically led to a recession, because such action slows economic growth and causes unemployment to rise. The current rate hikes are occurring at a pace and magnitude not seen since the early 1980s. This includes two 75 basis point rate hikes in both June and July. The last time the Fed raised rates 75 basis points prior to this was 28 years ago.
  6. Remember also that rising interest rates cause earnings of companies to decline, which in turn causes their stock prices to decline. BlackRock, the largest money manager in the United States, in their August 15 weekly commentary stated that “the risk of disappointing earnings is one reason we are tactically underweighting stocks.”
  7. Finally, according to InvesTech Research, the most volatile years in the stock market occur in bear markets, and some of the bigger bear markets have seen 1% to 2% swings on nearly half the trading days in the calendar year. If we extrapolate the number of 1%-2% moves in the S&P 500 so far in 2022 for the full year, we are in rarefied air. In fact, if this pace of volatility continues it will be comparable to some of the most severe bear markets of the past 60 years (1973 -1974, 2000-2002, 2008-2009).
 

bdgan

Well-Known Member
May 29, 2008
61,914
38,842
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If a Republican were president, we would be three months into a recession. It’s a two tier system now.
That's certainly how the media would have been reporting it.

What would be different if a republican was president.
  • The pent up demand coming out of covid would still exist.
  • We wouldn't have had the extra $4 trillion in government spending. My guess is that $1.5 trillion of that has been spent and it was a major factor in fueling inflation.
  • If we didn't have the extra spending that fueled inflation the fed might not have been forced to increase rates so aggressively.
  • I think Putin would have still invaded Ukraine but maybe not. We'll never know.
  • The country would be in better shape wrt oil and gas.
 
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fairfaxlion2

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Oct 12, 2014
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the upcoming correction will be huge and it does not matter what party is in power

best guess is around 40-50% down from here

maybe a little less than that, but it won't be a minor correction
 

bdgan

Well-Known Member
May 29, 2008
61,914
38,842
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the upcoming correction will be huge and it does not matter what party is in power

best guess is around 40-50% down from here

maybe a little less than that, but it won't be a minor correction
That seems extreme. We're already down 17% and there's a ton of stimulus spending still in the pipeline.

But housing is a big piece of the pie and interest rates are a big problem. How many people can afford EVs at these rates?
 

fairfaxlion2

Well-Known Member
Oct 12, 2014
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That seems extreme. We're already down 17% and there's a ton of stimulus spending still in the pipeline.

But housing is a big piece of the pie and interest rates are a big problem. How many people can afford EVs at these rates?
already down 17% doesnt matter much when you started from overvalued by 125%
 

fairfaxlion2

Well-Known Member
Oct 12, 2014
8,803
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There's some truth here.

A lot of stocks have basically zero value. They are equity in money losing companies.

LdN
a lot of tech stocks with p/e ratios above 50 or 100, making stupid things that are useless

we have been here before, in 2000

look what happened for the following few years
 

BW Lion

Well-Known Member
Apr 9, 2020
5,664
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It’s been fun watching the longs (aka Gens X, Y and Z who never experienced the mid/late 1970’s and early 1980’s) so addicted to their FOMO trying to squeeze the shorts.

The period between now and early November should prove interesting.
 
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fairfaxlion2

Well-Known Member
Oct 12, 2014
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It’s been fun watching the longs (aka Gens X, Y and Z who never experienced the mid/late 1970’s and early 1980’s) so addicted to their FOMO trying to squeeze the shorts. 😎

The period between now and early November should prove interesting.
while there are definitely some smarties in the emerging tech companies, they are skewed really young and I honestly believe that they have never been through a major correction in their professional careers. also they seem to have a bizarre and flawed understanding of basic economic concepts

lots of hubris there and not a lot of context about what is bound to happen


also Gen X includes people born in the late 1960s thru 1980. not sure how you are grouping them in with Gen Z
 

gjbankos

Well-Known Member
Jan 16, 2006
59,042
37,479
1
Thanks Joe!

After suffering the worst six-month loss in over 50 years the S&P 500 and other indexes stabilized and then rallied for two months only to face more volatility to the downside. It’s very likely that the downturn we have been experiencing will get much worse and the bear market is likely not over.

  1. Housing has been a major driver of economic growth over the past two years but now appears to be slowing dramatically due to recent rate hikes, according to InvesTech Research.
  2. The National Association of Home Builders reported that both the Builder Confidence Survey and the Traffic of Prospective Buyers Survey continue to crater as rising home prices and decade high mortgage rates are keeping potential buyers on the sidelines. The association went on to state that conditions have gotten so bad that we’re now in a “housing recession,” which could seriously contribute to the depth and duration of an economic recession.
  3. The2-year versus 10-year Treasury yield curve recently inverted once again, meaning that the shorter-term investment is actually yielding more than the longer-term investment. Historically this inversion signals a recession. The last time it inverted this much was the year 2000 after which the S&P 500 fell another 48.1% to the eventual bottom. Of course, it doesn’t mean it will play out the same way this time but investors who ignore such a red flag do so at their own peril.
  4. The University of Michigan Consumer Sentiment Index hit a reading of 50 in June which was a “70-year low,” and it’s still hovering around that level. The average reading is close to 90 and every time it has dropped anywhere near current levels since 1964, it has always been accompanied by a recession. In spite of positive reassurances from economists and Fed officials this would historically cement any question as to whether or not we are in a recession.
  5. Also keep in mind that aggressive rate hikes by the Fed have historically led to a recession, because such action slows economic growth and causes unemployment to rise. The current rate hikes are occurring at a pace and magnitude not seen since the early 1980s. This includes two 75 basis point rate hikes in both June and July. The last time the Fed raised rates 75 basis points prior to this was 28 years ago.
  6. Remember also that rising interest rates cause earnings of companies to decline, which in turn causes their stock prices to decline. BlackRock, the largest money manager in the United States, in their August 15 weekly commentary stated that “the risk of disappointing earnings is one reason we are tactically underweighting stocks.”
  7. Finally, according to InvesTech Research, the most volatile years in the stock market occur in bear markets, and some of the bigger bear markets have seen 1% to 2% swings on nearly half the trading days in the calendar year. If we extrapolate the number of 1%-2% moves in the S&P 500 so far in 2022 for the full year, we are in rarefied air. In fact, if this pace of volatility continues it will be comparable to some of the most severe bear markets of the past 60 years (1973 -1974, 2000-2002, 2008-2009).
But the last guy was a meany tweeter!
 

bdgan

Well-Known Member
May 29, 2008
61,914
38,842
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already down 17% doesnt matter much when you started from overvalued by 125%
The PE would drop below 10 if the market fell that much unless earnings also fall 50%.

I agree we have a problem but I think the fed cuts rates before the economy slows that much. But in that case we're probably stuck with 4% inflation.
 

fairfaxlion2

Well-Known Member
Oct 12, 2014
8,803
6,719
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The PE would drop below 10 if the market fell that much unless earnings also fall 50%.

I agree we have a problem but I think the fed cuts rates before the economy slows that much. But in that case we're probably stuck with 4% inflation.
And? It fell below 10 in the early 80s
 

The Spin Meister

Well-Known Member
Nov 27, 2012
25,280
29,679
1
An altered state
Thanks Joe!

After suffering the worst six-month loss in over 50 years the S&P 500 and other indexes stabilized and then rallied for two months only to face more volatility to the downside. It’s very likely that the downturn we have been experiencing will get much worse and the bear market is likely not over.

  1. Housing has been a major driver of economic growth over the past two years but now appears to be slowing dramatically due to recent rate hikes, according to InvesTech Research.
  2. The National Association of Home Builders reported that both the Builder Confidence Survey and the Traffic of Prospective Buyers Survey continue to crater as rising home prices and decade high mortgage rates are keeping potential buyers on the sidelines. The association went on to state that conditions have gotten so bad that we’re now in a “housing recession,” which could seriously contribute to the depth and duration of an economic recession.
  3. The2-year versus 10-year Treasury yield curve recently inverted once again, meaning that the shorter-term investment is actually yielding more than the longer-term investment. Historically this inversion signals a recession. The last time it inverted this much was the year 2000 after which the S&P 500 fell another 48.1% to the eventual bottom. Of course, it doesn’t mean it will play out the same way this time but investors who ignore such a red flag do so at their own peril.
  4. The University of Michigan Consumer Sentiment Index hit a reading of 50 in June which was a “70-year low,” and it’s still hovering around that level. The average reading is close to 90 and every time it has dropped anywhere near current levels since 1964, it has always been accompanied by a recession. In spite of positive reassurances from economists and Fed officials this would historically cement any question as to whether or not we are in a recession.
  5. Also keep in mind that aggressive rate hikes by the Fed have historically led to a recession, because such action slows economic growth and causes unemployment to rise. The current rate hikes are occurring at a pace and magnitude not seen since the early 1980s. This includes two 75 basis point rate hikes in both June and July. The last time the Fed raised rates 75 basis points prior to this was 28 years ago.
  6. Remember also that rising interest rates cause earnings of companies to decline, which in turn causes their stock prices to decline. BlackRock, the largest money manager in the United States, in their August 15 weekly commentary stated that “the risk of disappointing earnings is one reason we are tactically underweighting stocks.”
  7. Finally, according to InvesTech Research, the most volatile years in the stock market occur in bear markets, and some of the bigger bear markets have seen 1% to 2% swings on nearly half the trading days in the calendar year. If we extrapolate the number of 1%-2% moves in the S&P 500 so far in 2022 for the full year, we are in rarefied air. In fact, if this pace of volatility continues it will be comparable to some of the most severe bear markets of the past 60 years (1973 -1974, 2000-2002, 2008-2009).
This is all some scary stuff but it ignored one huge negative to come......winter heating bills. Energy costs have skyrocketed and if we have a rough winter the heating bills will be devastating for many people. And Putin is waiting for winter to really shut off the spigots and watch the west shiver and scream.

And as those bills come in, consumer spending will plummet. Layoffs, dealing GDP, lots of people hurt.