January was the worst month in the financial markets since March 2020. Interest rates (10 yr US Treasury) spiked on inflation fears. This led to a major sell off in stocks, especially tech stocks. We experienced the first correction (decline of 10%) in almost 2 years. Volatility was off the charts with moves of 1% or more (plus or minus) on half of the days during the month.
The stock market made an impressive rebound the last 2 days of the month, mostly due to how oversold it had gotten and positive corporate earnings from Apple. The question now is whether the recent rebound is just a dead cat bounce or a time to pounce and put more money to work.
- A dead cat bounce is an investing term for the temporary rise in the price of a stock or other asset during a long period of decline. The morbid term comes from the idea that if it falls far enough, even a dead cat will bounce. The "bounce" is the short-term price increase that is preceded and followed by decline. Technically speaking, a dead cat bounce can only be identified after it happens.
The chart below shows the steep decline in the S&P 500 during January and the rebound attempt at the the end of the month. The question now is can the market stay above the red line (~4,450 on the S&P 500).
We will likely get a sense of direction by the end of this week as several large, important market bellweather companies are reporting their earnings this week. That includes Google, Amazon, Facebook and Exxon.
Our sense is that the factors that led to the January decline (higher inflation and interest rates, slowing economic activity due to Omicron) remain and that the recent rebound will lose steam and the market likely has another decline in the near future. However, we remain responsive to how the market shifts.
I thought this cartoon very appropriate to what the market is experiencing right now.
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February Calendar of Events (comments and additions for future months are always welcome)
- February is Black History Month. Let’s all strive for understanding and acceptance for people of all colors, nationality, and religions.
February 2nd Groundhog Day – praying he doesn’t see his shadow – I’m tired of winter
February 7th Super Bowl Sunday – please watch safely (masks and social distancing)
February 14th Valentine’s Day
February 21st Presidents Day
Sources: Day Hagan Asset Management, Motley Fool
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