Buying Opportunity?

Stocks opened mixed this morning (Dow -105 pts; SPX -.3%; Nasdaq +.2%) following on the heels of Friday’s selloff. The VIX fear gauge jumped over 34 and investor sentiment is palpably sour. John Authers of Bloomberg News calls this the “Spring of our discontent.” As we predicted, the S&P 500 is now in the process of re-testing its February intraday correction lows. And at the same time, market weakness is steadily wringing out every bit of overvaluation in both stock and bond markets. Bonds are selling off again, pushing yields higher. The 10-year Treasury Note yield just climbed to 3% for the first time since November 2018 (the last time the Fed was raising interest rates). And by the way, the Fed’s next rate policy announcement is scheduled for Wednesday. At this point, the bond market has already priced in a 100% chance of four .50% interest rate hikes this year, which would push the Fed-funds interest rate from .25% to 2.25% by September. That expectation might be too aggressive.

It’s getting harder and harder for investment professionals to ignore buying opportunities. Tony Dwyer of Canaccord Genuity says we’re in the middle of a “stealth bear market” that began last November. And at this point, nearly 50% of the Nasdaq is down 50% or more. He believes the stage is set for an over-sold rally. Morgan Stanley’s Adam Parker says the stock market is building in weaker expectations for the US consumer. But this is entirely anticipatory. Current conditions are strong—certainly better than the market’s price action is implying—and the consumer is in pretty good shape. So he concludes that “This is a little emotional.” Wharton Professor Jeremy Siegel says stock valuations “look good.” But the market needs some time and maybe some more downside to digest the Federal Reserve’s plan for completely removing monetary stimulus over the next year or two. So we’re “very near a bottom.” He also addressed the inflation problem. Covid era money printing added 25% to the money supply. As a result, inflation will probably run in the 5-6% range for “quite a while.” That’s the bad news. But the good news is that money printing is over, and that’s a “prerequisite to bringing inflation down.” So we may now be at peak inflation. BMO’s Brian Belski says that the current buyer’s strike is creating good buying opportunities. Two-thirds of the US economy is consumer spending, and the consumer is in good shape.