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Expect More Stock Market Pain Because It’s Coming

April 22, 2022

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9:35 pm

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59 comments

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Economics

S&P 500 Index chart courtesy of StockCharts.Com, annotations by Mish

There was significant carnage in individual issues today. Yet, a step back to a monthly chart shows the decline in 2022 does not yet register.

Bear Market Action

In bear markets, support levels do not hold. There is almost no chance the 4200 level on the S&P 500 holds.

Although bear market bounces can happen at any time. the next technical support level is near 3200 or so. I would expect a bounce there for technical reasons, but there is no fundamental or technical reason to expect a bottom there.

Indeed, I expect to be at that level before a recession even hits. 2400 might hold but I doubt. Taking back all the gains to 2016 or 2014 is a strong possibility.

That would be a decline to the 1800 to 2000 level. Curiously, that level would not make stocks a scorching major bear market PE buy, but rather something reasonably priced.

Tweet of the Day

In the last 2½ hrs, vol players have started paying attention, w/ 3-mth $VIX curve dropping from a blissfull +3.1 to a “nervous giggling” +1.5. For reference, get-me-out panic is below -5, so still lots of pain left to get there. $SPY $QQQ $IWM

— FZucchi 🇮🇹🍝🗽😢 (@FZucchi) April 22, 2022

Lots of Pain Left

“In the last 2½ hours, volatility players have started paying attention, w/ 3-mth $VIX curve dropping from a blissful +3.1 to a “nervous giggling” +1.5. For reference, get-me-out panic is below -5, so still lots of pain left to get there.”

Those citing bull-bear survey ratios please pay attention. Those numbers reflect what people are doing, not what they are saying.

How Many Hikes Coming?

2/2

Many ask how does the Fed hiking help the poor? Doesn’t it risk making then unemployed?

The Fed does not think hiking will cause them to lose their job but will pound stocks lower (reverse wealth effect).

This reality is getting priced in.https://t.co/KvE7cgB1zJ

— Jim Bianco (@biancoresearch) April 22, 2022

I think Bianco is wrong, but I easily could be. And what happens to equities if he is right?

Soft Landing?

Cartoon of the Day: Crashhttps://t.co/jfkynkMzzv pic.twitter.com/Zb1wvKSKu5

— Hedgeye (@Hedgeye) April 22, 2022

I suggest roughly a 2% chance.

Danielle DiMartino Booth on Art Cashin

It’s rare that Arthur Cashin chimes in twice in one day. And yet he did…emphatically “I can’t stress strongly enough how important that final hour action will be and if it turns into a route that can present big problems for next week.”

— Danielle DiMartino Booth (@DiMartinoBooth) April 22, 2022

The final hour was a rout.

Theme Trading

$NFLX is down 59.6% YTD and the worst performer in the S&P 500 this year$DIS is down 32.9% YTD and the worst performer in the DJIA this year

Both are in the streaming and movie business

I see a theme

— Jim Bianco (@biancoresearch) April 21, 2022

In the “Oops” Department

#Our1929Quotes

This is pretty egregious. It’s self evident that he is doing someone connected with CNBS a favor… https://t.co/UQgvSqU0AX

— Michael Norinsberg (@Mnorinsberg) April 22, 2022

There is literally no logical explanation why @JimCramer still has a job. He’s the worst of the worst.

PS: Hey Jim remember that time you slandered Hedgeye and our short call on Linn Energy? We were right and the stock went to ZERO? We do.

Go jump in a sewer where you belong https://t.co/sU4e6lQpbe

— Hedgeye (@Hedgeye) April 22, 2022

Hoot of the Day

“We are going to have a crash landing if [the Fed] doesn’t slow it down,” @jimcramer warns after a rough day for stocks.

Slow it down??? FF are 0.25% and balance sheet hasn’t been reduced by a penny.

— Michael Lebowitz, CFA (@michaellebowitz) April 22, 2022

Cramer warns of a crash landing. That’s my hoot of the day.

David Hunter is Still Looking Melt-Up

Hunter predicted ARKK to $180+ exactly six months ago. Today it’s trading at $53. A complete implosion. Are you watching and learning? pic.twitter.com/5zU1ER28Hj

— Trent Norris (@TrentNorris13) April 21, 2022

That Tweet was last year. He is still looking for the melt-up. “Watch and learn” is a Hunter phrase.

More on Rate Hikes

Markets now expect 10 rate hikes thru the remainder of the year. pic.twitter.com/4FReXv05aM

— Hedgeye (@Hedgeye) April 22, 2022

Worst Case Scenario

Thanks Michael
But I also got a lot of things wrong.

I never thought we would get to these levels.

In general, I called bonds better than equities. I blame myself hard.

In a worst case scenario, I think 1200 to 1500 level holds on S&P 500.

Playable bounces in many places.

— Mike “Mish” Shedlock (@MishGEA) April 22, 2022

Yeah Mish nailed. What so surreal is I was there as well, short subprime, wondering why Cramer was furiously pumping those companies on TV. Quite frankly I was pretty naïve back then. Those companies were already failing. I didn’t understand he was trying to help his buddies out.

— Michael Norinsberg (@Mnorinsberg) April 22, 2022

What If?

Assume the call is correct? What If?
Assume the call is incorrect? What If?

In case #1 inflation will still be a problem.

In case #2 how deep will the recession be?

So, forget about a soft landing.

The correct question is What’s the Shape of the Hard Landing?

And where will stocks be?

This post originated at MishTalk.Com.

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59 Comments

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Oldest Most Voted

Casual_Observer2020

4 years ago

There are many types of landings between a crash landing and no landing. While the landing may not be soft it can be successful.

Lisa_Hooker

4 years ago

Reply to Casual_Observer2020

A landing you can walk away from is a good landing.

A landing where you can use the airplane again is a great landing.

Bam_Man

4 years ago

Yesterday’s stock market action (particularly the last 45 minutes) was eerily reminiscent of Friday, October 16th 1987 (yes, I am old enough to remember that day as an investor), which was the first time ever that the DOW had declined 100 points in a single day.

We all know what followed on the next trading day.

ed_retired_actuary

4 years ago

Reply to Bam_Man

I also recalled the similarity . In Oct 1987 the S&P 500 was down close to 20% from its peak 2 months prior, Today, the decline has been longer and somewhat less. The 1987 crash was subsequently diagnosed as being accelerated by the positive feedback loop of dynamic portfolio “insurance” programs, a form of momentum strategy in which market declines/ rises automatically lead to more selling / buying. Although the life insurance industry currently engages in a similar strategy to hedge guaranteed values in variable annuities and insurance contracts, it is unclear to me whether the net hedging strategy of the banking industry to back structured products is stabilizing or destabilizing. Some of the chaos of the 1987 crash came from market information systems being overwhelmed, and hedgers operating somewhat blind. This would be very unlikely now.

Captain Ahab

4 years ago

Reply to ed_retired_actuary

IMHO, this time will be a stampede–all the rank amateurs who were forced into the herd by zero interest rates, zero trans costs, and easy access

Bronco

4 years ago

Reply to Bam_Man

Zweig going yard … bottom of the 9th … 7th game World Series … down 3 … bases loaded …

From the Lou Rukeyser show the Friday before Monday’s Crash. CNBC would never let someone like him near their set nowadays.

Teed up:

https://www.youtube.com/watch?v=RJWW0LOzOlk&t=374s

Bam_Man

4 years ago

Reply to Bronco

Watch the “Wall Street Week with Louis Rukeyser” episode that aired on the Friday after Black Monday.

“The Fed” was mentioned a grand total of one time – right near the end of the program.

My, how times have changed.

thimk

4 years ago

Goldman analysts recently raised their 2022 forecasts for buybacks to a record $1 trillion, – Zowie Batman ,1 trillion on deck for 2022 maybe 2 trill+ cumulative to date . will that be enough to stem the downturn ?? OH incidentally some of that is borrowed money .

Tony Bennett

4 years ago

“Cramer warns of a crash landing. That’s my hoot of the day.”

…

Can Not Stand that guy. Wrong on so many things. Cares only about the stock market 24/7 (damn, the bottom 90%). As soon as things start to sour begs / pleads on his show for Federal Reserve to save asset holders, aka, top 10%.

Back in December he added to his “legacy”:

“I think we could go to a period where we have an economic boom not unlike post-World War I” and after the 1918 pandemic, CNBC’s Jim Cramer said Wednesday

From 1921 until 1929 before the market crash, the Dow soared roughly 500% alongside skyrocketing economic growth.

“We have a boom developing” in the economy, Cramer said on CNBC, predicting stocks tied to the economy getting back to some semblance of normal will benefit.

https://www.cnbc.com/2021/12/08/cramer-sees-potential-for-roaring-20s-type-boom-as-covid-concerns-ease.html

thimk

4 years ago

Reply to Tony Bennett

Yes the infamous “they know nothing rant” .

ed_retired_actuary

4 years ago

The combination of persistant high inflation and stock market declines could be disastrous for already severely underfunded state and municipal pension and retiree health care plans. The confidence that many state & local govts. have derived from Federal stimulus subsidies and higher real estate tax bases may be fleeting

Tony Bennett

4 years ago

Reply to ed_retired_actuary

Yes. Pensions will get hammered.

Nor do I care. Most Americans do not have pensions. Pensioners (especially civil servant) who reap 6 figure (or close to it) annual payouts are a dime a dozen. The bottom rungs of society do not need the inflation necessary to prop the sacred pensions.

ajc1970

4 years ago

Reply to Tony Bennett

state-level pensions and federal pensions won’t get hammered, there’s no mechanism for bankruptcy.

they’ll stay fully-funded by the taxpayers or printing machines or both, no matter what happens.

sucky position to be in if you’re under 70 with a municipal pension though.

Captain Ahab

4 years ago

Reply to Tony Bennett

Often, the pension plan was NOT an option, so social security and 401Ks etc are effectively eliminated. Taxpayers and voters allowed it, and benefited from chronic underfunding.

Lisa_Hooker

4 years ago

Reply to Tony Bennett

A lot more folks have $20k pensions than have 6 figure pensions.

Casual_Observer2020

4 years ago

So at some point I think unemployment starts going back up if more companies start belt tightening. Every cycle companies go from rampant hiring to quick job cuts.

Tony Bennett

4 years ago

Reply to Casual_Observer2020

Yes.

Business will have itchy trigger finger.

I’ve brought this question up several times. In most states (I think 46 or 47) in order to file (initial claim) for UE you have to have worked in 4 out 5 past quarters. When covid hit over 20 million lost their jobs. Yes, most have since gotten jobs, BUT many haven’t worked long enough to file again (assuming LIFO employment). To my knowledge the requirement (4 of 5) still in play. Anyone know for sure?

If so, following initial claims as harbinger of poor economy inoperative.

Lisa_Hooker

4 years ago

Reply to Tony Bennett

This has been going on since 2008. More and more are “not in labor force” because technically they cannot be unemployed.

It’s like the CPI where items that have gone up in price are not included.

Captain Ahab

4 years ago

Reply to Casual_Observer2020

Not a possibility, GUARANTEED

Christoball

4 years ago

No wild swings on the stock indexes today; just a steady downward trend line. That seems like an orderly market, just in a downward direction. Emotion has left the field and fundamentals are speaking.

Tony Bennett

4 years ago

Reply to Christoball

Correct.

Orderly. For now.

At SOME point we’ll get —

Mortimer: Now you listen to me! I want trading reopened right now! Get those brokers back in here! Turn those machines back on!!

My prediction for a while to kick off the “festivities” is China devaluing. Saw ZH the other day with a story on just that (due to China’s economic problems + yen weakness).

Bam_Man

4 years ago

Reply to Christoball

The setup was very similar and the decline looked orderly on Friday October 16th 1987.

The next trading day, not so much.

Christoball

4 years ago

Reply to Bam_Man

Yes I remember that Monday. The current fragile fundamentals have been there for months, but the recent wild swing days we had in the last few months were more speculative emotions at work because the news reports were in conflict with the economic reality in a big way. I expect more sugar coating from the news mediators as things fall apart on Monday. After all…. Bull markets end on good news, Bear markets end on bad news. The fundamentals will be strident and will win over fiction.

Captain Ahab

4 years ago

Reply to Christoball

Wait for the panic stage as amateurs try to save what they have left.

Lisa_Hooker

4 years ago

Reply to Captain Ahab

First phone call: place stop loss order.

Second phone call: sell at the market.

Casual_Observer2020

4 years ago

I think at some point the Fed will step in with QE while raising rates in order to help retirees preserve stock market gains. Best case scenario is we go sideways for a decade while the Fed props up stocks while letting rates go back to the normal range.

Casual_Observer2020

4 years ago

Florida passed a bunch if politically motivated meaningless wedge issue laws but they didn’t address the obvious.

https://www.sun-sentinel.com/opinion/commentary/fl-op-com-florida-homeowners-insurance-crisis-20220416-4oj3d6u4ubf6jplpmybuwv3yyy-story.html

Zardoz

4 years ago

Reply to Casual_Observer2020

They got those math books purified though…

RonJ

4 years ago

Reply to Zardoz

Math is purely about numbers, not social propaganda. Math books should only be about math.

Anon1970

4 years ago

Reply to Casual_Observer2020

The article is behind a paywall but you can read about the State’s insurance crisis here: https://www.rstreet.org/2022/04/22/florida-homeowners-insurance-market-the-crash-everyone-can-see-coming/

As far as the wedge issues go, religious conservatives will get what they deserve.

RonJ

4 years ago

Reply to Casual_Observer2020

Disney has become politically motivated.

Nuddernoitall

4 years ago

If Powell and the Fed seek a perfect soft landing, I suggest they look carefully at Cathie’s ARKK chart, where they will observe for the past 15 months ARKK has been on an easy downward decline (with some air turbulence on occasion.) To my eye (and I’m not as trained in financial matters as Cramer is) it appears ARKK will take another nine months of comfortable descent before a perfect and soft landing. I do want to stress this advice is not transitory.

kiers

4 years ago

If i remember correct, Jim Cramer “earned” his “carry” (the high pay he gets moonlighting as a wall streeter) because he was supposed to have distinguished himself in prosecuting/taking-down Eliot Spitzer. Then he earned his “pension” so to speak, and he morphed from Law to “Finance”. Boo-ya!

Grantham type trend analysis indicates that “fair value” given historical trend for SP500 is around 3300-3500. That’s “fair/proper”, not recession value! Scary!

Mish

4 years ago

Reply to kiers

3300 is also the first reasonable major support

That is my best case scenario – with a caveat that I will write up

PreCambrian

4 years ago

I still have Linn Energy in my account if anyone would like to buy it. Some type of placeholder security in case there is anything given to unitholders after the lawsuits are finally finished.

Nmcoyote1

4 years ago

If we believe that we will continue down. What stocks are the ones to buy now, or should we move to cash?

Mish

4 years ago

Reply to Nmcoyote1

Cash is a good option.

Buy gold and miners too.

kiers

4 years ago

Reply to Mish

not crypto miners!

Esclaro

4 years ago

Reply to Mish

Gold got hammered today but not as bad as stocks.

Scooot

4 years ago

Reply to Esclaro

It was the dollar that rose against Gold today. Gold went up against Sterling.

Casual_Observer2020

4 years ago

Reply to Nmcoyote1

If you were hedged correctly you wouldn’t have to do anything and sleep better at night. Most traders will have to find day jobs soon.

QTPie

4 years ago

I see today’s action as the market telling the Fed: “don’t you dare raise rates and reduce the balance sheet!”.

The question is then – will the Fed fold again like a cheap suit as it normally does?

Scooot

4 years ago

Reply to QTPie

“The question is then – will the Fed fold again like a cheap suit as it normally does?”

It’s a long time since inflation was this bad and they’re doing their best to tell everyone they won’t fold.

Casual_Observer2020

4 years ago

Reply to QTPie

It was the opposite. The Fed saying they are going to raise rates. The faster rates rise the better off we will be as things settle to a new equilibrium. It’s hard to believe the market is whining about rates possibly going up 2-3%.

Pontius

4 years ago

Reply to QTPie

Mister pronouncement late Friday first crack in fed narrative?

Naphtali

4 years ago

Yes, we are destined to live in interesting times. I expect many retirees will have rather unfortunate retirements.

Mish

4 years ago

added a couple of Tweets to my post

CzarChasm Reigns

4 years ago

I’m gonna go out on a limb and say a 2% chance is the equivalent of the infamous 2 chances (slim & none).

Captain Ahab

4 years ago

My non-technical take on the first chart–which btw, should be an eye-opener to all:

The 2001-02 crash is less relevant; still, a normal cycle, IMHO made worse by 9/11 and the tech boom. It took 4-5 years to recover.

The 2007-08 crash took a year to bottom out, and four years to recover. IMHO it was a normal down cycle, made worse by Obama.

The 2022-03 crash… might take a year or so to bottom out. IMHO , a normal down cycle made infinitely worse by the Fed. Recovery time ??? GOK (God only knows)

Using a buy and hold strategy, a portfolio from 2001 (pre-crash) will take until 2013 before it truly recovers! Which leaves a buy low — sell high strategy as the only way to get ahead.

Incidentally, based on that first chart, I have a regression to the mean (long-term value) at about 1,800; and the two crashes together suggest a ‘floor’ at 750 on the SP.

Six000mileyear

4 years ago

I would like to add that the U$D surged higher today, and has been on a tear. How much volatility can foreign exchange markets take? Who’s debt in U$D is going to blow up?

Captain Ahab

4 years ago

Reply to Six000mileyear

Ask Japan maybe. National debt is 266% of GNP, 45% held by the Bank of Japan. In terms of U$D, $41 billion in 2020, at least that much in 2021…

kiers

4 years ago

Reply to Six000mileyear

Could it be, that the high interest rates are vital to cover for/counter foreign dumping of USD? Thus explaining the kooky rate tightening cycle at a time of misery.

Esclaro

4 years ago

Reply to Six000mileyear

USD is destroying everything as it rockets higher. It’s not over yet either!

Six000mileyear

4 years ago

Considering 2 of the FAANG stocks (NFLX, FB) are down more than 50%, AMZN and GOOG down 20%, and AAPL failing to break January 2022 highs after rallying off the March 2022 lows; FAANG is already in a bear market.

Captain Ahab

4 years ago

Early days yet, IMHO. It’s not over until the fat ‘person’ sings… or jumps off the window ledge…

A perspective I just saw on Zero Hedge:

To put the gains into perspective…

A 20% decline would bring you back to 2021 levels.

A 30% decline would bring you back to 2020 levels.

A 40-60% decline would bring you back to 2019 levels.

A 70% decline would bring you back to 2017 levels.

Mish

4 years ago

Reply to Captain Ahab

A good perspective but I also like Hussman’s view

Casual_Observer2020

4 years ago

Reply to Captain Ahab

If the market goes down x% and up x%, it is still down from where it started.

thimk

4 years ago

Reply to Captain Ahab

Yes so the question remains will the rate of descent exceed the rate of ascent .

Captain Ahab

4 years ago

Reply to thimk

Descent is ALWAYS FASTER than ascent. The reason, PANIC

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