Are The Market Tremors Foreshadowing Something Bigger?

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On Monday, January 25th the US stock was under heavy selling pressure.  According to Bloomberg news, the Dow Jones Industrial average was down over 4% during the trading session only to recover and etch out a minor gain.   Larry McDonald, editor of the Bear Traps Report, states that this type of large inter-day reversal happened 9 time between 2000-2022 and 3 times in 2008. We all understand how those markets treated investors.  What are the markets telling us…is this the calm before the storm?


You may not know, but the markets have had a bit of trouble for the last several months (we call it a rotation).  The 5 largest firms in the Nasdaq and S&P have been able to mask the pain.  The overall Nasdaq market was up approximately 20.7% from Jan 1, 2021, through Dec 1, 2021 according to Yahoo Finance.   But, as our friend Paul Harvey would share, here is the rest of the story.

The Nasdaq Composite is an index comprised of over three thousand companies and is weighted in proportion to the size of each company.  Thus, larger companies have significant influence over the performance of the index.  Had we removed the 5 largest companies from the index for the first 11 months of 2021, we would have found the index down over 15% adding to the Bear Traps Report We have been warning clients of a coming market correction for months.
 

Patriot Asset Advisors believes this to be very reminiscent of the 1999-2000 time frame.  During that point in history the bubble in the so-called Dot-Com market burst. In this current cycle we have witnessed investors and speculator pouring money into anything benefiting from the stay-home trend.  They have driven a select group of companies to nose-bleed valuations. In recent months, the air has been coming out of the speculative tech names.  We believe there will be much selling of the biggest technology names in the weeks and months to come.

Without getting too deep into the weeds, we will share with you that 2022 may be a challenging year for the markets. We think the Federal Reserve has their collective backs to the wall.  If they aggressively raise rates, they risk a recession. We believe the Fed will tread very lightly which should favor the investments that we are recommending to many clients.

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