The 1-Minute Market Report – June 16, 2022

Originally published on June 16, 2022

Make the rubble bounce

The 1-Minute Market Report is tailored for those who want a quick recap of what’s going on, without the usual fluff and filler. I try to focus on the main drivers of the current market action and offer some brief commentary along the way.

A quick summary

• Today, the market landed with another thud and the rubble bounced.
• The dip-buyers must now draw the line at 3600 on the S&P 500.
• Today was yet another 3-sigma event (down more than 3 standard deviations).
• 81% of all stocks are now down 20% or more.
• Talk of recession increases daily, in spite of Mr. Powell’s denial of intent.
• Unemployment claims are rising as tech firms shed workers.

Chart 1. Today’s stats

We begin with the daily stats. Today was another exceptionally weak day and the 6th decline in the last 7 days. Of the 1,500 stocks in the S&P 500, 400, and 600 combined, only 40 were up today. That makes today a 37-to-1 down day.

81.5% of all stocks are now in a bear market, with the median stock down by -32.1%. The decline of -3.25% in the S&P 500 makes today the 95th worst day out of 18,230 trading days since 1950.

Chart 2. S&P 500 Drawdowns YTD

Today, the market opened lower, then quickly dropped 150 S&P points before a last-hour bounce of 27 points. Rally attempts throughout the session were weak. The market closed just 66 points above the -25% line at 3600. It wouldn’t take much of an effort to get there tomorrow.

Chart 3. Equity Groups % Change

The next chart shows the performance of stocks that share certain characteristics, like value vs. growth, large vs. small cap, and cyclical vs. defensive. I created these groups to offer a way of visualizing the flow of investor money – where it’s going and where it’s coming from.

Small and mid-cap growth stocks led the decline today. As expected, defensives like consumer staples and arms manufacturers held up better than the rest of the groups.

Chart 4. Market Sectors % Change

The energy sector has been leading the market all year, but for the last few days, it has become a source of funds as investors scramble to get out of the way.

The defensive Consumer Staples sector held up the best.

Charts 5 & 6. Best and worst performing stocks

The final two charts drill down into the specific stocks that gained and lost the most today. The winners list is a mixed bag. On the losers list, there are three auto-related names.

Final Thoughts

After a six-day pounding, have the bulls given up? It certainly looks that way, but the market has a long history of doing the opposite of what the majority expects. The last shred of good news was the fact that the economy was still on a growth track, which supported the case for rising personal income, spending, and corporate profits. Now that is being called into question, with talk of recession coming from an increasingly loud chorus of strategists and economists.

A recession would certainly bring down inflation, but at what cost to investors, savers, and consumers? Unemployment would rise, corporate earnings would fall, and the stock market would take another hit.

We’re already seeing anecdotal signs of a crack in the labor market, with initial unemployment claims on the rise and an increasing number of companies announcing layoffs. This might just be a temporary slowdown in hiring, but it could also get worse. I think that the Powell Fed will ease back on their tightening plans if the employment picture starts to deteriorate in a meaningful way.

I also think they will be more mindful of falling asset prices than the Volcker Fed was back in the 1980s. My Bayesian probability model is forecasting that the market will end the year somewhere close to 4500 on the S&P 500. That would imply a gain of more than 20% from here.

Are you looking for more high quality ideas? Consider joining The ZenInvestor Top 7, my Marketplace service. The Top 7 is a factor-based trading strategy. Its screening algorithm prioritizes reasonable price first, then the momentum, and finally projected earnings growth. The strategy produces 5-7 names, and rebalances every 4 weeks (13 times per year). The goal is to catch healthy companies that have gone through a rough period, and are now showing signs of making a strong comeback. Join now with a two-week free trial.

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.