The key stock to watch for the market bottom: Morning Brief

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Wednesday, May 11, 2022

Today’s newsletter is from emily mccormickYahoo Finance reporter. Follow her on Twitter

As volatility grips the markets, investors are naturally wondering when the selloff will taper off and bottom out.

According to several experts, the answer is probably not quite yet.

Stocks have fallen considerably so far this year and especially in recent weeks. The S&P 500 is down 16% so far in 2022, and a slightly steeper 16.6% since its recent record high close on Jan. 3. -date and down about 27% from its recent record of November 19, 2021. But even after these double-digit losses, the stock may still have to fall further before bottoming out.

According to Bank of America, bear markets have lasted an average of 289 days with an average price decline of 37.3%, based on data from 19 bear markets that have taken place over the last 140 years.

Technically, the S&P 500 has yet to officially enter a bear market, which is typically defined when the index closes at least 20% below its recent closing record. However, the index has rapidly approached that threshold, and many experts have suggested that stocks are generally trading as if they are already at one.

“Past performances [is] there is no guide to future performance, but if it were, today’s bear market ends on October 19, 2022, with [the] S&P 500 to 3,000 [and] the Nasdaq at 10,000,” Michael Hartnett, chief investment strategist at Bank of America Global Research, wrote in a note on Friday. The S&P 500 and the Nasdaq Composite closed Tuesday’s session at 4,001.05 and 11,737.67, respectively.

Many stocks individually have fallen much further. As SoFi’s Liz Young points out, as of Tuesday, only about 16% of Nasdaq Composite stocks were trading above their 200-day moving averages, or a key technical indicator of a stock’s price trends. That’s close to the ultra-low percentages seen in market funds over the past two decades, including in 2020 (about 6%), 2018 (9%), and 2009 (4%).

Furthermore, the relative outperformance of a particular stock solidifies, at least for some strategists, that more selling may be needed before the bottom is hit.

Namely, mega-cap tech stocks Apple (AAPL) continue to show resilience even in the face of heightened volatility, and when such a large company and such a weighted index component refuses to crash, that may be a sign that the fund has not touched it hasn’t been installed yet, according to DataTrek Research co-founder Nicholas Colas.

“Market tradition says that investable funds occur when the best companies underperform. We agree with that sentiment,” Colas wrote in a note Monday. “If and/or when AAPL ‘crashes’, that will be a major signal that we are at invertible lows.”

“We know that global capital investors are treating AAPL as the safest port in the current storm. We see it in the return data. We see it in the recent endorsement of Warren Buffett,” he added. So far, Apple is down 13% year-to-date, versus the S&P 500 falling 16%. “Giving up Apple, with its worldwide market share, long-term track record and balance sheet For strength, it’s kind of like the ‘give up America’ trade of 2009…if AAPL finally gets caught in a massive US/global equity crash it will be a sign we’re at truly investable lows.”

Traders work on the floor of the New York Stock Exchange. (Photo by Scott Heins/Getty Images)

All that said, this is in no way an endorsement of trying to time the market or trying to buy stocks precisely at the bottom. The probability of hitting at that moment is extremely low. Instead, this is intended to put into context some of the conditions that may indicate that the market has priced in enough “bad news” that known risks and peak pessimism have been more fully reflected in share prices.

And to that end, the market today seems not to have completely written off the bad news, because the market doesn’t seem to know how bad things can get given everything that’s going on.

The outcome of Russia’s war in Ukraine and the full extent of supply chain disruptions due to virus-related lockdowns in China remain to be seen. There is still a lot of uncertainty about how much and how quickly the Federal Reserve will need to raise interest rates to reduce inflation. And in a similar vein, uncertainty still abounds over whether the Fed’s rate hikes and broader tightening of financial conditions will ultimately trigger a full-blown recession in the US economy. Goldman Sachs economists reiterated earlier this week that they saw the probability of a US recession within two years at 35%.

“Non-recession bear markets tend to be short and shallow,” John Lynch, chief investment officer at Comerica Wealth Management, said in a note Monday. “It is conceivable that the S&P 500 needs to set a bottom in the 3,850 to 4,000 range. With no recession in 2022, which is our base case, stocks may rise again as equity investors price in the cyclical recovery in an environment where monetary policy is no longer driving costly growth and tech names at a multiple. of sales”.

what to see today

Economy

7:00 a.m. Eastern Time: MBA Mortgage Applicationsweek ending May 6 (2.5% over the previous week)
8:30 a.m. Eastern Time: Consumer’s price index, Month after month, April (0.2% expected, 1.2% in March)
8:30 a.m. Eastern Time: Consumer Price Index excluding food and energy, month over month, April (0.4% expected, 0.3% in March)
8:30 a.m. Eastern Time: Consumer price index, year over year (8.1% expected, 8.5% in March)
8:30 a.m. Eastern Time: Consumer Price Index excluding food and energy, year over year, April (6.0% expected, 6.5% in March)
2:00 p.m. Eastern Time: Monthly budget statement, April ($260.0 billion expected, -$225.6 billion in March)

Profits

Premarket

6:00 a.m. Eastern Time: Yeti Holdings (YETI) expected to report adjusted earnings of 32 cents per share on revenue of $290.6 million
6:30 Olaplex (OLPX) expected to report adjusted earnings of 11 cents per share on revenue of $172.44 million
6:40 a.m. Eastern Time: Krispy Kreme (EVENING) expected to report adjusted earnings of 7 cents per share on revenue of $367.86 million

post-market

4:05 p.m. ET: disneyDIS) expected to report adjusted earnings of $1.18 per share on revenue of $20.11 billion
4:05 p.m. ET: Bumble (BMBBL) expected to report adjusted earnings of 2 cents per share on revenue of $208.27 million
4:05 p.m. ET: Sonos Inc. (SOUND) expected to report adjusted earnings of 17 cents per share on revenue of $351.67 million
4:05 p.m. ET: Beyond the meat (PORND) expected to report adjusted loss of 98 cents per share on revenue of $112.17 million
4:05 p.m. ET: Dutch Brothers (BROTHERS) expected to report adjusted earnings of 1 cent per share on revenue of $145.9 million
4:30 p.m. ET: Rivian Automotive (RIVN) expected to report adjusted loss of $1.45 per share on revenue of $131.2 million