The Long Term Investor

Here is one take on the SPANKING that the markets took today.

Why the stock market is getting thrashed after rallying on Fed hike

https://finance.yahoo.com/news/stoc...fter-huge-rally-after-fed-hike-161810856.html

(BOLD is my opinion OR what I consider important content)

"So much for the Federal Reserve being the friend of the stock market.

The Dow Jones Industrial Average plunged 1,000 points on Thursday as traders reassessed what Fed Chair Jerome Powell said at his post-decision press conference yesterday.

A perception of a less hawkish Powell was embraced by the markets on Wednesday afternoon.

The Dow Jones Industrial Average soared 932.27 points and the S&P 500 gained 2.99%, which were the largest gains for the two indices since 2000. Even the beaten-up Nasdaq Composite popped 3.19%.

It now appears that after a few hours of deep thought, traders have formed a more lasting near-term view that the Fed is far from dovish, has let inflation get out of control, and is still poised to dramatically slow down the economy through a series of 50 basis point rate increases.

"Inflation is still going to be a major problem throughout the rest of this year and beyond," Miller Tabak Chief Markets Strategist Matt Maley said.

Selling pressure today was widespread and in some cases severe.

The Nasdaq Composite plunged nearly 5% by early afternoon trading. Small-cap stocks — as measured by the Russell 2000 — dropped more than 4%.

E-commerce companies such as eBay, Etsy, Shopify, and Fastly were hammered amid the one-two punch of broader market pressure and lackluster earnings.

Wall Street pros think the selling could continue in the short term on fears of a sharp, Fed-driven growth slowdown as it catches up on rate increases.

"It is much too soon in economic space for the Fed to allow financial conditions to ease very substantially on a sustained basis again, as this would work against the needed cooling of economic activity required to bring inflation under control," warned EvercoreISI strategist Krishna Guhu. "So if the broad easing on the day across the dollar, equities, rates, and credit continues to rip in the days or even weeks ahead, the Fed will likely have to find a way to rein it in.""

MY COMMENT

What a ridiculous close to this article. The FED has ZERO ability to rein anything in. The FED is going to find out that whatever they do they are going to be IMPOTENT when it comes to inflation or anything else. They dont have a magic wand. They are going to be along for the ride most of the time just like the rest of us.

It will be over when it is over and no one will be able to call it or cause it to happen. My opinion......the Fall election is probably the first chance that we have for things to normalize a bit.....assuming that the House and/or the Senate changes hands. Time will tell if we are in for a good old fashioned sustained BEAR MARKET. For now the NASDAQ is slightly in a BEAR MARKET at about minus 21.3%. The other averages are just in slight correction territory.

Unfortunately we are STUCK with the most incompetent government I have seen in the last 40+ years. At least as bad and perhaps worse than Jimmy Carter. Can you say......MALAISE.

 

The best thing about tomorrow is that it is Friday. And......yes:

I continue to be fully invested for the long term as usual. Why would I not?

 

COME ON MAN.....when I said that I think we have another 5-10% DOWN to go.....I did not mean that we should do it all in one day.

 

Roadtonowhere. Yes I have posted that a few times. We have company today to the markets will be on their own. If I get a chance later I will post the daily results and some historic results.

I dont keep any data at all........I used to before 2008/2009 and my average return back than was in the +14% range......for the long term. I TOTALLY sold out from May 2008 to about January or so 2009 during the near banking collapse.........and I quit keeping performance data since it was just busy work. BUT......I reinvested everything ALL IN in January or so 2009......Schwab has the results since than compared to the SP500. So later........I will pull up that data from Schwab for the past 15 years.

Looks like we are making an attempt to come back at the moment.

 

Roadtonowhere.......I have a moment so here are some results.

From 1-1-09 (as of 5-5-22):

Since 1-1-09 I am at +15.69% versus the SP500 at +14.37%.

For five years I am at +13.91% versus the SP500 at +13.59%.

For three years I am at +13.07% versus the SP500 at +13.97%

For one year I am at -0.28% versus the SP500 at +0.92%

Year to date I am at -18.70% versus the SP500 at -12.59%

All of the above is from Schwab......I dont keep any performance data anymore.

 

Here is the economic data that no one cares about.

April jobs report: Payrolls rise by 428,000 as unemployment rate holds at 3.6%

https://finance.yahoo.com/news/apri...or-department-unemployment-usa-184903769.html

(BOLD is my opinion OR what I consider important content)

"U.S. job growth remained robust in April as the unemployment rate held near its pre-virus low, further underscoring the still-tight domestic labor market.

The Labor Department released its monthly jobs report for April Friday morning at 8:30 a.m. ET. Here were the main metrics from the print, compared with consensus data compiled by Bloomberg:

• Non-farm payrolls: +428,000 vs. +380,000 expected and a revised +428,000 in March
  
• Unemployment rate: 3.6% vs. 3.5% expected, 3.6% in March
  
• Average hourly earnings, month-over-month: 0.3% vs. 0.4% expected and a revised 0.4% in March
  
• Average hourly earnings, year-over-year: 5.5% vs. 5.5% expected, 5.6% in March
  

The U.S. economy has brought back payrolls each month so far in 2022, and April's payrolls gains still represented growth well-above pre-pandemic trends. Throughout 2019, payroll growth had averaged about 164,000 per month. And though payroll gains were also slightly downwardly revised for February and March, these increases were still solid on a historical basis. In February, employment grew by 714,000, versus the 750,000 previously reported, while March employment was upwardly revised by 3,000 to reach 428,000.

Services-based employers have brought back some of the most jobs yet again in April, as companies hastened to hire back workers let go during the pandemic to meet renewed consumer demand. Employment in the leisure and hospitality industry increased by 78,000 in April, slowing just slightly from March's 100,000. Education and health services employers brought back slightly more jobs in April compared to March at 59,000. Transportation and warehousing payroll gains increased much more markedly in April compared to March, rising by 52,000 compared to 9,500 during the prior month.

In the goods-producing sector, payroll growth was little changed month-on-month, with jobs growing by 66,000 in April. This was in turn led by hiring in manufacturing, where payrolls grew 55,000.

Meanwhile, the unemployment rate held steady in April at 3.6%, or just a hair above February 2020's level of 3.5% from before the pandemic. That, in turn, had been the lowest level for joblessness since 1969. And this came as the labor force participation rate unexpectedly dipped to 62.2% from March's 62.4%, suggesting a smaller share of the population was either employed or actively seeking work.

"Almost 500,000 workers decided to leave the workforce in April. The large decline is a concerning prospect for businesses that are facing one of the tightest labor markets in decades," Peter Essele, Head of Portfolio Management for Commonwealth Financial Network, said in an email Friday morning. "Currently, there are 11.5 million job openings and only 5.9 million unemployed, causing a large mismatch in labor supply and demand that’s fueling wage growth. A further decline in the participate rate could exacerbate the labor supply shortage, resulting in further wage pressures that will inevitably flow through to broad-based inflation."

Wages also climbed yet again, albeit at a slower monthly and annual pace compared to March. On a month-over-month basis, average hourly earnings increased by 0.3%, slowing from March's upwardly revised 0.5% increase. And on a year-over-year basis, average hourly earnings were up 5.5%.

The recent increases in payrolls and wages and decrease in the unemployment rate, however, have not given rise to a commensurate improvement in the financial well being of many Americans. With inflation running at 40-year highs, price increases for consumer goods have outpaced earnings growth. The U.S. Consumer Price Index (CPI) last rose at an 8.5% year-on-year rate in March or the fastest since 1981, according to the Bureau of Labor Statistics.

"So many people seemed to be banking that if we could get unemployment down to 1st quarter 2020 levels, everything would be fine," Giacomo Santangelo, economist at the employment platform Monster, said in an email earlier this week. "What we are finding now is while the unemployment situation has improved on a macroeconomic scale, individuals are facing rising prices that are threatening their standard of living."

Amid persistent inflation, the Federal Reserve earlier this week opted to raise interest rates further and announced the start of quantitative tightening, or rolling assets off the central bank's $9 trillion balance sheet. At his post-Fed meeting press conference, Fed Chair Jerome Powell expressed optimism that the moves would succeed in addressing some of the demand-side factors contributing to inflation and that, combined with some easing in supply-side constraints, these would help put a cap on rising prices.

"Wages are running high, the highest they've run in quite some time. And they are one good example ... of how tight the labor market really is," Powell said during his press conference Wednesday. "The fact that wages are running at the highest level in many decades. And that's because of an imbalance between supply and demand in the labor market."

"So we think through our policies, through further healing in the labor market, higher rates, for example of vacancy filling and things like that, and more people coming back in we'd like to think that supply and demand will come back into balance," he added. "And that, therefore, wage inflation will moderate to still high levels of wage increases, but ones that are more consistent with 2% inflation. That's our expectation.""

MY COMMENT

The job and employment markets are totally screwed up......especially for small business. We are now heading into the last couple of weeks of earnings. That is the forgotten topic.

I would call the markets at the moment FLAT. The close is very much up in the air at the moment.......no real direction.

 

I am now off with company.......so I will leave it to you guys to get us to a POSITIVE CLOSE......not that I really care short term.

 

I have time for a few brief posts. I was of course.....RED....today moderately. I also got beat by the SP500 by 0.77% for the day.

TGIF.

 

For the week....not as bad as the last couple of days makes it seem. the DOW and the SP500 were BARELY down for the week. The NASDAQ 100 and the NASDAQ are in Bear Market territory.

DOW year to date (-9.46%)
DOW for the week (-0.24%)

SP500 year to date (-13.49%)
SP500 for the week (-0.21%)

NASDAQ 100 year to date (-22.22%)
NASDAQ 100 for the week (-1.25%)

NASDAQ year to date (-22.37%)
NASDAQ for the week (-1.25%)

RUSSELL year to date (-18.07%)
RUSSELL for the week (-1.32%)

 

We re-group over the weekend for next week. How do we do that? Well...by doing nothing of course.

Using the NASDAQ as a guide.......we have now been taken back in time to November of 2020. At that time the NASDAQ was about where we see it today.

With the SP500......we are now back at May of 2021.

So after all this pain of the start this year.......we have gone back in time somewhere between about......one year according to the SP500.......or if you prefer.....about a year and a half according to the NASDAQ.

 

Well my figures were better before this little nearly 20% drop in that portfolio. Before this drop the long term number was a bit above 16%........and I was also beating on the three year data. I cant remember where I was on the one year......probably beating.....but I cant remember to be sure.

In any event what goes down.....will go back up.....someday. PATIENCE is the name of the game at the moment.

 

Which brings me to this little article. It is a pretty good summary article.

When the Levee Breaks, Panic Is Not a Strategy

https://www.schwab.com/resource-center/insights/content/when-levee-breaks-panic-is-not-strategy

"April tears
It was quite a month. The S&P 500 was down nearly 9% in April, its worst month since March 2020, when the pandemic wreaked havoc with stocks. It was worse for the Nasdaq, which was down more than 13%, its worst month since October 2008, when the Global Financial Crisis wreaked havoc with stocks. Even more significant pain was felt by the "Big 5" largest stocks in major indexes [Apple, Microsoft, Alphabet (Google), Amazon, and Tesla], which were collectively down nearly 20%, their worst month ever as a group. Amazon was in the crosshairs late last week, having announced that it had overbuilt during the pandemic, and is now experiencing waning demand…which may be a canary for broader consumption/inflation trends ahead.

Peeling a layer or two of the market onion back, underlying weakness has been evident for quite some time—it's just that lately, the largest-capitalization names have not been spared. Below is our crowd-favorite drawdowns table, and as shown, the average member drawdown from both year-to-date and 52-week highs is between -21% and -47%. In other words, the average member drawdown of -21% for the S&P 500 puts it in bear market territory, even though the index decline has skirted that moniker for now.


Source: Charles Schwab, Bloomberg, as of 4/29/2022. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Past performance is no guarantee of future results. Some members excluded from year-to-date return columns given additions to indices were after January 2022.

History's lessons
It's the third-worst four-month start for the S&P 500 since WWII, while it's the worst in the Nasdaq's shorter history. Looking back at historically weak starts of at least or near this magnitude, average and median returns going forward were weaker than average. Volatility has been especially pronounced for the Nasdaq 100. Bespoke Investment Group (BIG) looked at its average daily moves since its inception in 1971, and there were only three periods with loftier readings: dotcom bust era around 2000; GFC era in 2008; and debt downgrade era in 2011.

BIG also looked at the most-highly correlated years with 2022 so far. Of the 10 most similar, nine were after WWII. Again, subsequent returns were mixed-to-weak the following year. Based on the "average" patterns of the prior 10 periods, the S&P 500 tended to have further declines over the next 100 trading days, before starting to show signs of stabilization. As to whether the S&P 500 is on its way to an index-level bear market, the decline so far isn't much of a "tell" based on history. BIG compared the S&P 500's performance over the past 80 trading days to the first 80 trading days of prior post-WWII bear markets from all-time highs. In the vast majority of those prior periods, the index was down less from its all-time high than where it is now.

Halitosis
Market breadth statistics remain generally weak and "out of gear"—perhaps oversold enough to warrant a bounce, but not oversold enough to suggest the market has priced in the possible recession on everyone's mind. However, since weakness has moved up the cap spectrum, that has allowed for some breadth improvement (the hard way) for the cap-weighted indexes.

Leadership has also provided a tell in terms of the economy's trajectory. The relative outperformance of traditionally defensive segments of the market relative to more cyclical segments has been in force since last summer. At the same time, some of the most speculation-driven segments of the market are again under significant pressure. Goldman Sachs-tracked baskets, including Retail Favorites, Most-Shorted, Non-Profitable Tech-and the De-SPAC Index, are down between 40% and 70% from their highs last year.

In the market's favor could be the plunge in attitudinal measures of investor sentiment (often a contrarian indicator at extremes) and the possibility that inflation could be in the process of peaking. Earnings have also been relatively strong, in aggregate (more on that below). But risk remains high that volatility bursts will persist, especially with the Federal Reserve set to hike rates aggressively over the next several months.

GDP: emphasis on "gross"?
Those in the recession camp got some fillip last week with the release of first-quarter real gross domestic product (GDP), although the report had something for economic bulls as well. At the headline level, growth (or lack thereof) was objectively weak: real GDP contracted at a 1.4% quarter/quarter annualized rate, the first decline since the second quarter of 2020.

For what it's worth, we think the odds point more toward recession than soft landing (where the Fed can raise rates, tame inflation, and keep unemployment low.) Of the past 13 rate hiking cycles, a recession has unfolded 10 times, with soft landings only three; as such, a recession is typically the "safer bet." If the current period's unique additives—a 40-year high in inflation, growth already weak as the Fed ramps up rate hikes, the simultaneous shrinking of the Fed's nearly $9 trillion balance sheet, a pandemic that isn't over and the Russia/Ukraine war—it arguably moves the needle more toward recession. Key to the ultimate answer is likely to be the labor market, which remains an important economic support.

GDP details
As shown in the table below, consumer spending increased by 2.7% and business investment increased by an impressive 9.2%. Both components undoubtedly kept real GDP from falling further, given the drag from net exports and inventories, which contributed -3.2% and -0.8%, respectively, was largely responsible for pulling the headline figure into negative territory (in addition to a negative contribution from government spending).


Source: Charles Schwab, Bureau of Economic Analysis, as of 3/31/2022. *Represents contribution to percent change in real GDP. Numbers may not add up to 100% due to rounding. Real (inflation-adjusted) GDP based on annualized Q/Q % change.

Those in the soft-landing camp may write off the short-term irregularities associated with the trade balance and inventory data, instead shifting focus to the relative strength of the consumer. The surge in imports was indeed a confirmation that shipping congestions continued to ease throughout the quarter, and though inventories have climbed in level terms, the rate slowed considerably (it was never expected to match the increase in the fourth quarter of 2021).

The economically bearish take is that negative inventory contributions may persist for longer than expected. Inventories as a component of GDP are calculated as the change in the growth rate as opposed to the change in the stock; if businesses are unable to boost stockpiles at the same rate as in the prior quarter, there will be a net negative effect. If that persists alongside a slowdown in consumption, there is likely further downside to headline growth.

A balanced view of growth in the first quarter is that consumption's pace has slowed, business investment remains incredibly strong (a plus for the supply side of the economy), and the fiscal drag persists. What helped keep the economy afloat in the depths of the pandemic was a double-barreled boost from both fiscal and monetary policy; yet the math is such that we now have a double-barreled tightening from the reversal in (or now lack of) stimulus. In conjunction with the surge in inflation, that will put downward pressure on growth, incomes, and spending.

A note on the "strength" of the consumer
The 2.7% increase in first-quarter consumer spending is not to be discounted, as consumption helped keep growth from diving lower. Worth noting, however, is that consumer spending does not need to turn negative for the broader economy to weaken or even enter into a recession.

As shown below, consumer spending never contracted during the 2001 recession, contracted for only one quarter in the 1981-1982 recession, and was even positive for one quarter in 2008 (as the financial crisis unfolded). Acute observers will note that the narrative of the strong consumer is not always the elixir for the economy; broader macro forces can at times be powerful enough to supersede spending.

Consumption's boomerang


Source: Charles Schwab, Bureau of Economic Analysis, as of 3/31/2022. Y-axis truncated at +25% and -15%.

Also worth emphasizing is both the trend in spending and the reason it moved up in the first quarter. Real consumption improved in March relative to February, assuaging some fears that the second quarter started on weak footing. However, March's 0.2% gain was down considerably from the 1.5% gain in January. Not only that, but the savings rate fell to 6.2% in March (the lowest since 2013), a 2.2% drop from the end of 2021. That indicates that consumers dipped into their savings to maintain their spending throughout the quarter, which isn't surprising given the sharp increase in inflation.

Should that trend continue, however, there may be less slack for consumption to continue to boost growth; and while business investment remains strong right now, the future is murkier with an aggressive Fed, supply chain disruptions failing to dissipate, and margins coming under pressure. Regardless of whether recent economic weakness is the marker of a recession on the horizon, investors should be keenly aware that growth is slowing. Not only have the effects of the pandemic relief/stimulus, post-vaccine reopening, and pro-cyclical inflationary boom worn off, they have turned into headwinds.

Beat it
As noted, first quarter 2022 earnings season so far has provided decent news, at least in the aggregate. Of the 279 companies in the S&P 500 that have reported earnings per share (EPS), more than 80% have beaten consensus estimates—compared to a long-term (since 1994) average of 66%, but a prior four-quarter average of 83%. In aggregate, companies have reported EPS 6.7% above estimates—compared to a long-term average of 4.1%, but a prior four-quarter average of more than 13%.

On the negative side, there have been 75 negative EPS pre-announcements issued by S&P 500 companies compared to 27 positive, which puts the negative/positive ratio at 2.8 (significantly higher than normal). On a more positive note, the window for stock buybacks has reopened, which could provide a boost to EPS.

As shown below, the "blended" growth rate (combining already-reported earnings with consensus expectations for those not yet reported) for the S&P 500 is now more than 8%, with Energy leading the sector pack and Financials bringing up the rear. From there, earnings are expected to slow to about 6% in the second quarter before rebounding in the second half. We can say for certain that these growth rates will not prove to be accurate—but whether the bar remains set too low will largely be dependent on the trajectory of the economy from here (obviously).


Source: Charles Schwab, I/B/E/S data from Refinitiv, as of 5/2/2022. Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data.

Thanks in large part to high labor costs, profit margins have decelerated as well, though not yet to a significant degree (we expect more to come next quarter). In keeping with the deceleration in earnings growth underway since last year's peak, the S&P 500's year/year change has decelerated accordingly, as shown below (the green bars represent quarterly consensus estimates).

S&P change mirrors EPS growth rate


Source: Charles Schwab, I/B/E/S data from Refinitiv, as of 5/2/2022. Y-axis truncated at +60% and -40%. Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data. Past performance is no guarantee of future results.


Volatility tied to earnings releases has been significant. As shown below, on earnings report days, stocks disappointing the most (at least a 20% miss relative to expectations) have been hammered relative to the 2003-2021 median. At the same time, stocks beating expectations by at least 20% have had weaker performance relative to the 2003-2021 median.

Misses getting punished disproportionately


Source: Charles Schwab, 22V Research, as of 4/29/2022. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Past performance is no guarantee of future results.

In sum
It's been a mixed-to-weaker bag in terms of macro drivers and we expect significant bouts of volatility to persist. Based on the initial report, the economy contracted in the first quarter, but consumer spending remained relatively healthy. Although inflation may have peaked, it's unlikely to decelerate quickly, putting increasing pressure on the consumer looking ahead. Investor sentiment, as measured by surveys, has turned pessimistic, which could provide some support for stocks; however, behavioral measures of sentiment do not yet show a "washout," or full-scale capitulation.

Last year was a story of pro-cyclical (or demand-pull) inflation, while this year it's turned into a story of counter-cyclical (or cost-push) inflation. The pressure associated with the latter should be somewhat proportional to the power of the former, which suggests even if some measures of inflation have peaked, the negative economic consequences are likely not yet in the rearview mirror.

This is not a time for investors to take on risk outside the parameters of their strategic asset allocations. It is a time for investors to employ traditional disciplines around diversification (across and within asset classes), to focus on quality in terms of stocks' fundamentals, and to stay in gear via periodic rebalancing. In the case of rebalancing, it's one of the investment world's greatest disciplines, as it forces investors to adhere to a derivative of the adage, "buy low, sell high," which is: add low and trim high."

MY COMMENT

I tend to agree with the above. It is interesting that in general EARNINGS have been GREAT although companies have not been rewarded up to par for the good and have been punished more than par for the bad.

At this point with this market it is going to be all about.....quality and fundamentals going forward from here.

It is also going to be about....staying the course for investors for the long term.....that is the ONLY way to capture the first 2-3 weeks of big gains when the market starts to recover.

The headline talks about panic......but I really dont see much of this going on. No one seems to be talking about the markets that I know. I am surprised there is not more people bailing out of the markets.....but I dont see much of that happening.

 

Same old same old......open today for the markets. AND......why not?

The psycholgy of the markets is unchanged. Earnings are over for the most part and even though they were good by historic norms no one cares and many people dont even know. We are in a psychological driven market. The factors......incompetent government with backwards policies toward business and the economy.......the FED.....inflation.....interest rates......are NOT going to change or go away.

The BIG FACTOR.....government.....is not going to change for the better for another 2+ years at the minimum. The FED is going to continue their rate mania for another year or more. Inflation is likely to be around for another year or so since the actions of the FED are unlikely to have any impact.

What will kill inflation will be when the economy tanks and the.......poor consumer quits participating. We are not there at this point. So all will continue in the current mind set.

Business FUNDAMENTALS and quality do not matter in this sort of a market environment. Day traders and micro traders should LOVE IT.

 

To continue the above. At this point with the SCREWED UP labor markets and the inability of business to find and keep up employees.......wages are rising quickly. We are currently in a mini.....WAGE/PRICE spiral.........due to the employment/labor/jobs situation.

This stuff will change when the economy gets worse and businesses start to fail and pull back. We need the employment market to FLIP and weaken and cause lay offs so workers will be glad to take and keep a job. In other words we need PAIN to be felt by workers and........as a result......a big pull back in spending by consumers.

At the same time......the more government.....tries to REGULATE and MICRO-MANAGE the economy........the worse things will be.

On the positive side.......we NEED the above to happen. ALL the negative sounding stuff above will turn out to be POSITIVE because it will get us out of the current mess. In other words......we need PAIN.....to break this cycle and......get to the GAIN.

I STILL say.....even from the levels we are at today.......we have another 5-10% to go on the down side......we need to see rising unemployment.......we need to see stagnant wages.

We have not seen an extended time period of economic PAIN for a long time now. Investors are spoiled. People took way too much risk with extremely concentrated portfolios.......one stock, three stocks, five stocks......gambling on options......worthless stocks being driven by social media......whatever. It is fine to have a focused portfolio......perhaps 8-15 stocks......but there has to be some balance in a portfolio......like part of the portfolio being in a broad Index.