It’s been a bit difficult to get the license plate of the truck that’s running over the stock market, considering that when you look up right now all you see are axles and undercarriage.
Sure, China’s devaluation is a suspected driver, as is the Fed’s policy committee. And some dumb schmuck even keeps joking that it’s simply fund-raising ahead of all the upcoming Ashley Madison divorce settlements. (Talk about a black swan event!)
And though the truck running over stocks appears to be going about 100 miles per hour right now, if you take a step back you can see that it’s been coming at us in slow motion for some time now. In the back of the truck are crammed together all the bear cases that previously seemed so easy to ignore: the decimation of energy company earnings and the junk debt they loaded up on; the potential “hard landing” for China; the fear that this was all simply a sugar-high rally based on the Fed’s Pixie Sticks.
Remember that this weakness didn’t start last week -- it started around Memorial Day. The U.S. market last closed at a record on May 21, the Thursday before the holiday. It’s likely something less than a coincidence that the dip started ever so slowly the next day when Janet Yellen told a crowd in Rhode Island that the winter economic slowdown won’t deter the Fed from raising rates.
At any rate, this is the longest it’s taken the Standard & Poor’s 500 Index to drop more than 5 percent from a peak since World War II, according to Sam Stovall at S&P.
‘Elongated Top’
If you subscribe to the type of Whitman’s Sampler mix of market-breadth and sentiment indicators that quants like Doug Ramsey of Leuthold Group believe in, it may have even started as early as the summer of 2014 as part of an “elongated top that could take a year or more” to pan out.
It’s too simple-minded to pin the blame on one single catalyst, but rather best to view them all as a chain of somewhat related events that tired out a raging bull after its sixth birthday.
Various assumptions that have been plugged into various investment formulas have been punched in the face one-by-one over the last 14 months, like some sort of comic-book fistfight. Oil at $100 a barrel? BAM!! The Chinese yuan at 6.2 per dollar? KAPPOW!!! Thin spreads on junk bonds!! WHAMMO!!! A 25 basis point increase in the federal funds rate in September? BLAP!!!
Greasy Wall
As a result, the proverbial wall of worry that this bull has climbed for so long has been greased up as all these assumptions fell to the floor one by one.
People will tell you the tape reminds them of 1998, or maybe 1987 or, heaven forbid, 1929. But every situation is different so these are really exercises best left to the barroom rather than the trading room
.
Today’s crescendo has been so violent that it may even be tough to separate what prices are accurate reflections of buyers’ and sellers’ opinions of what they should be, or just other victims of a spasmodic market trying to keep up with a crush of volume that’s double or triple what you’d expect in the middle of an August heat wave.
Was the low of 1,867.01 in the S&P 500 this morning the line in the sand that the bulls will go to the mattresses to defend, or will that number get blown away like so much dust in the wind? Does a plunge like this make no sense given the underlying fundamentals of the economy, or do the underlying fundamentals of the economy make no sense when the market’s breaking down like this?
Beware of anyone who expresses any sort of real confidence in what the market’s next move is.
It’s not 1998. It’s not 1987. It’s not 1929.
It’s 2015. Do you even know where your marks are?
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