It’s not the news. It’s how markets react to the news.
Many are saying markets have to go up because economy is strong, earnings are strong, unemployment is low and consumer confidence is through the roof. They are correct on all those accounts except one. The market DOES NOT have to go up on good news. Yes…markets do go down on good news every now and then. This is because markets look forward, not backwards. Markets factor in what is ahead, not before. So careful. Everything was wonderful as markets topped in early 2000. Real estate was strong as banks started to top out in early 07.
We are not saying the end of the world is at hand. We are saying this is a market that has been deteriorating from an already very narrow market. This is a market where foreign markets have woefully under-performed with some markets already in the 20% bear market mode. This is a market that with indices at the highs, there were many more new yearly lows than new highs indicating a masking of trouble. And now, many leading names have topped with some totally broken down. Healthcare, which has led recently, is getting serious distribution. The small and mid caps have already moved below support/50 day moving average.
The good news remains that the DOW and S&P remain above the 50 day. But the NDX now sits on the 50 day and the NASDAQ now hangs below. The good news is that higher rates on the long end stopped the ugly in the financials…for now. In the past, deterioration has led to pixie dust stopping the downside and then leading to a narrow upside. We are open to anything. Just know, the ice has been getting thinner.