Trees cannot grow to the sky

Trees cannot grow sky-high. Similarly, the equities that were supported by easy money from the Fed's QE and low rates and went up over the last few years showing signs of correction. If markets go down during January (the month of the highest inflows), this means that bears will be out and bulls will be hibernating for the next few months.

The S&P 500 is down by about 7% since January 3rd. Any bounces during the drop have been used by traders to sell. It looks like this trend is going to continue until the market corrects by at least 10% (for some reason, round numbers matter for traders), reaching about 4,300.

The pressure on the equities comes not only from the sky-high PEs, but also from lower than expected corporate profits and less optimistic outlooks. So far we have seen some major disappointments from large banks and Netflix. The company's weak numbers triggered a more than 20% drop in the share price premarket (as of January 20).

According to some scenarios, the market is currently forming a floor, but it “still has some work to do” before reaching a trough, said Jim Cramer from CNBC. Other strategists expect market to bounce before it reaches a bottom.

Famous investor Jeremy Grantham predicts that in the longer-term, after the post-Covid rebound, the market is due for a major correction caused by the "crazy" behavior of equity investors. He projects that the S&P 500 might drop by 45% from current levels. Grantham believes that we are “approaching the end of the first U.S. bubble extravaganza: housing, equities, bonds and commodities”.

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Light at the end of the tunnel

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Santa and the first week of 2022

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February: Is the bull in charge?

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The Reopening: Online Travel Companies

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Ready, Set... January

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Oil: too far too fast?

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Under the plateau

The historical data summarized by DataTrek Research indicates that the years when S&P500 gains are more than 20%, the following January is likely to be flat. Though there are high chances that the S&P will have a strong first week, it is likely that the upside will diminish by the beginning of February. At the same time, statistically, the years when the S&P gains above 20% are followed by a 12 month period that produces more than a 10% average return (based on the data collected since 1945 by the Centre for Financial Research and Analysis). However, Omicron was absent during those years, as well as its potentially devastating impact on global economies. Even thought Omicron represents a threat to economies and financial markets, its relatively light symptoms and low hospitalization rate may allow investors to look past the negative effects of the new variant. More optimistic views on Omicron, strong January inflows and the expectation of solid annual returns,...

The S&P 500: Is 3,800 the next stop?

Stay Cool... Yesterday, the S&P 500 broke the critical level of 4,300 once again. Today, it drifted further down. In our previous posts from the end of January, we wrote about buying the correction and the possibility of the S&P 500 falling further into bear market territory (more than 20% down from the peak) after a rebound in the short-term . The S&P 500 charts formed the "head and shoulders" pattern that in 93% of cases results in a bear market . It seems possible that if the S&P 500 does not recover above 4,300 soon, it could drop by another 10%. This will get it to around the 3,800 level. Similarly to the beginning of this year, major contributors to the S&P 500 fall would be formerly "safe haven" Tech stocks (Facebook, Amazon, Apple, Netflix, Microsoft, Google) and shares of the smaller growth companies with a limited visibility of cash flows. Unfortunately, if investors start running to the doors, the sell-off might bring down share...

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