S&P 500 Enters Bear Market as Carnage Unfolds
Welp, the writing was on the wall here. As equities, housing, crypto, amongst other asset classes have benefited greatly from Jay Powell’s “easy money policy”, we are seeing in real time the age old adage of “what goes up, must come down” unfold before our very eyes. The S&P 500 slid nearly 4%, the NASDAQ down nearly 5%, and the DOW receded almost 3% during Monday’s trading session.
The S&P 500 officially entered correction territory back in late February, shortly after the Russian invasion into Ukraine. Markets have generally struggled since the onset of 2022, and have deepened their losses today. The S&P 500 officially closed in bear market territory. 495 out of the 500 S&P components finished the day lower. This is the first bear market since that seen in March 2020. PRESS ONE BUTTON, THEY BLEED.
It was quite clear that stocks were headed for a bumpy road ahead of them, facing a litany of economic headwinds, highlighted in our post back in the beginning of March. The eventual fed tapering, interest rate hikes, and nuclear CPI prints have proved to be enough to force steep declines in equities markets, and has ostensibly been slowing down the housing market as well. We don’t even need to get into the crypto market because it has been nothing less than an absolute dumpster fire, but we will anyways. Bitcoin got absolutely rekt into Monday’s trading session, settling ~$22,150. Ethereum settled around ~$1,200, and the cherry on top? The Celsius network paused all withdrawals and transfers between accounts. The crypto implosion is alive and well!
Even despite the strength of some trades this year, namely the energy sector and utilities, weren’t safe from Monday’s carnage. Both traded lower than the broader market, highlighting the severity of today’s risk-off trade. Quite literally nobody was safe today, except the U.S. Dollar. Although only being up 0.10%, the DXY remained strong and somewhat resilient amidst an absolute bloodbath virtually everywhere else.
Insane inflationary pressure has pressured the Fed to likely pursue a 75bps rate hike this week. Well, I shouldn’t say that, because it’s pretty much a guarantee at this point.
What a time to be alive. The last time inflation was this nuclear in the 1980’s prompted the infamous Paul Volcker all out assault on inflation, raising the Fed Funds Rate to as high as nearly 20% in 1981. The CME Group is showing a very likely probability that the Fed Funds Rate will settle up 2.5% from its current 0.75%-1.00% range. The “inflation is transitory” narrative has been just about squashed at this point. It’s kind of hard to believe that the Fed and U.S. Treasury Secretary actually got away with this claim, knowing full well that a full on injection of liquidity into the financial system coupled with ZIRP wasn’t going to have long-lasting effects on price actions of commodities. There was simply too much money flying around the system, and interest rates too low for this to ever be “transitory.”
The bottom line? Brace yourselves for not only an absolute wild ride in the markets this week, but for a presumable rough ride throughout the remaining portion of this year. The stark contrast between the Summer Twenty Fun markets and the Summer Twenty Boo (just coined that during this post) markets is like night & day. THE BEAUTIFUL DELEVERAGING IS IN.