Seems like it is getting closer to something like panic selling.
It will be interesting to see what the various ‘minor’ bottom indicators look like after the close today.
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but VIX doesn’t yet seem to reflect panic selling.
Amidst all the ‘minor’ indicators, the ‘major’ ones still aren’t showing the panic that marks a real long-term bottom. Perhaps more importantly, I’m not sure people who are bullish due to the high bearish market sentiment are paying close attention to how quickly and severely the bond market is recalibrating on the basis of inflation expectations.
https://fred.stlouisfed.org/series/BAMLC0A3CAEY
Sooner or later, these yield adjustments always reverberate to the stock Indexes. One might argue that the rise in Corporate Yields is transitory, as it has been during recent panics. Real-time inflation is far different than in recent panics, however, and the Fed has shown no indication it will control inflation in the near future.
To establish the “intrinsic value” of the S&P 500 in real-time, I use an equity-risk premium based on Single-A Grade Corporate Bond Yields, and the spread of Corporate Yields to Treasuries, rather than 10 or 30 Year Treasury Yields, ipso facto, due to the persistent, artificially low ‘payouts’ of the latter instruments over the last decade. Valuations in the stock market ebb and flow with the change in Corporate Yields and the spread of Corporate to Treasury bond Yields.
Why Single-A Corporates? That tranche, rather than Triple-A better accounts for the credit risk of the average S&P 500 common stock. I suspect many institutions follow a similar valuation model rather than one based on Treasuries for discount rates.
Last year in mid-May, Single-A Grade Corporate paper traded at an average yield of 1.9%. Currently, the yield is 4.14%. Accordingly, the higher discount rates will impact formal assessments of what the equity Indexes are really worth for those who believe what things are worth ultimately matters, and for those who aren’t relying on mere sentiment or breadth indicators, an Index such as the S&P 500 is still overpriced and that valuation phenomenon will get worse with additional upwards ratchets in Yields.
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It will be interesting to see what the various ‘minor’ bottom indicators look like after the close today.
For my bottom models:
Minor yes, major no.
It’s bad, worse than this only 1.7% of the time on my magic yardstick, but not so bad it’s good enough for a major bottom.
That requires it to be the worst 1% of the time, roughly speaking.
It was a bit worse than this in March 2020, December 2018, October 2018, Jan 2016, Sept 2015, a few days Aug-Oct 2011.
However, the short term bounce indicators are cheery.
Even if only because market falls aren’t smooth, things might be bad enough that a bounce from here on the way down seems a bit likely.
They like the odds for the next month.
Jim
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"However, the short term bounce indicators are cheery.
Even if only because market falls aren’t smooth, things might be bad enough that a bounce from here on the way down seems a bit likely.
They like the odds for the next month.
Jim "
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When all the fund computerized algorithms are pushing their short-term trading applications,
expecting a market “path” based on recent previous market patterns is likely correct. However, the
economy is not following the same paths - and so we might see rather large differences as we
get into a longer time frame. Months may turn out more disappointing if people continue to need to
spend more on necessities and “fear” becomes more of an economic driver.
Howie52
When attacked, turtles and consumers pull back into their shells. New home buyers decide rentals
are not all that bad. Renovations become doing only what is absolutely necessary.
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