Last Week Was Just the Beginning

Last weekend we bemoaned the anemic bear market rally that wound up with a rather bloody Friday sell-off. So what happened next?

Well, we all witnessed the sell-off verge on panic this past week. The beginning of the week brought a rather unseemly continuation of the Bear Market, after it's recent weak rally. After that inauspicious beginning, we got a rather jaunty initial response from the stock market in the face of the Fed raising its Fed Funds rate not 25, not 50, but 75 basis points. That was on Wednesday. Had the market already priced in the raise? Were the big guys running Wall Street quite content with the Fed's policy decision to somehow coral inflation by raising rates? Wouldn't stomping a steel-tipped boot on the neck of the inflation snake do us all a bit of good?

It did seem that way on Wednesday. Then came Thursday. Stocks tumbled. And - as we've noted with a puzzled look in our eye before - so did bonds. We'll leave the market report there. Let's switch to what to make of it.

Now, don't take my opinion too seriously. I've been wrong before, and might very well be this time. But for what it's worth, I'm not going to be shocked if we find the stock market rally for a bit - at least some days if not weeks. Why? It's just what Bear Markets do. It's not unusual for the Bear, having consumed some trillions of the wealth of people and institutions, to need some time to digest. They sure an eat a ton. But even a Bear's got limits.

So if the Bear gorged himself sufficiently, we're in for a bump up.

Then again, recall that Bear's do have a penchant for eating beyond our ability to make any sense of it. After all, at some point, they know they've got to fatten up for hibernation. So they eat...and eat, and eat, and eat. That could happen too.

Which is why I'm not betting heavily - if at all - on a rally. You do what you want. But if you do, and you believe this is a Bear Market, maybe you want to sell down to your comfort level, if you haven't managed that yet.

Of course, even a comfort level may not bring the comfort you think it should bring. In my own case, I'm at or at least close enough to a comfort level. But the market has managed to make that comfort level rather uncomfortable. Did I miscalculate?

Not really. When everything goes down - as has been the market's penchant lately - what's to calculate. The only salve you use to ease the pain of loss would have been the All Cash Salve. Sadly, that's not the product we chose.

Then again, we do have at least a modicum of confidence that some of the non-stock positions we've taken are indeed going to wake up and stop letting themselves get bullied by the leveraged players who, it would seem, have been selling whatever is at hand to meet margin calls as their bets savagely turned against them.

We recall, for example, how, in 2008, gold plummeted along with stocks. Down, I think, around 50% peak to trough. But it wasn't very long before it picked itself up, dusted itself off, and started back up again. And the subsequent rise kept us in the money for a while. It was a real roller coaster, to be sure, but we survived - and thrived.

Of course, bonds didn't follow their cousins in the stock market as they are now. They did fall for a bit too, but when the real selling picked up in the fall of 2008, panic sellers stuck their money in what was then - and seemingly always was - the safe haven: US Treasuries. That's not been the case this go-round - so far.

So with nothing giving any cushion or relief, what should have been a level of comfort has been, at the very least, a gnawing annoyance.

As for the "announcement" this past week that the S&P was in a Bear Market, it really shouldn't have been news at all. Just because the investment world's favorite benchmark officially crossed below the 20% loss line doesn't mean all that much. It did that in March 2020 - for the briefest spell we can recall. Yeah, they called that a Bear Market too. But what's it mean when it turned around so quickly. Was that really Bear? Don't think so.

We'll see how the next days/weeks unfold. But however things to go with stocks (as well as bonds, gold, and commodities), we'll have firmly planted in our brain the thought that the past two weeks could very well be just the beginning of a real Bear.