Momentum Monday – Resetting Expectations

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April was four weeks of relentless selling for all major indexes. Small caps Russell 2k (IWM), large caps S&P 500 (SPY), the Nasdaq Composite which includes 3,000 stocks made new year-to-date closing lows. In fact, all of the above with the exception of SPY, have fully erased their entire 2021 gains. SPY has held better thanks to the Q1 strength in basic materials, energy, and consumer staples but even those sectors have been under some pressure lately. In a bear market, eventually, they get to every sector. There are no safe places to hide. The picture is not pretty but it is not surprising either. Last week, we talked about the recent tendency of stocks (especially tech) to sell off ahead of FOMC meetings. There’s a new one scheduled for the next week – May 3rd and 4th. The big question is do we get the usual post-FOMC bounce or will this time be different? The main indexes are on the brink of breaking down and having another leg lower. If the Fed doesn’t tone down its stance on future interest rate increases, look below. 

The earnings season has just begun. The big theme so far is resetting expectations. Juggernauts like Google and Amazon, which everyone thought were invincible, missed estimates. Apple beat them but gave wide-range guidance citing supply chain challenges in China and the market sold it anyway. Tesla dropped 20% since its best earnings report ever as Elon Musk is raising money to fund his Twitter purchase and short-sellers have smelt blood in the water. If those major stocks can get hurt, no one is safe. This is why market sentiment has turned quite bearish. Many have already reached a point where they just want out of the market. Hitting everyone’s favorite stocks will do that.

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