It's not panic. It's methodical. It's not nuts, it's algorithmic. It's not erratic, it's actually in sync with the rest of the world.
And therein lies the problem.
First, let's put things in context. We're down 12% for the year, which is quite painful. Many stocks are down much, much more than that. We are way off our highs. And the bad part is that we are only 2 1/2 weeks into the year!
But all that means is that we are pretty much in line with other markets around the globe. Given that much money is run by macro concerns, meaning the United States S&P 500 futures vs. those of Europe or Asian countries, it makes perfect sense that we should be down as much or maybe more given that our Federal Reserve is in tightening mode and no one else's is.
I could argue, for example, that Japan, which is down more than 20% from its high, is not that much worse off than we are. I could say Germany, which is also down 12% for the year, is much better off than we are because Europe is easing and the country's numbers are pretty darned good. A country like Germany should have a better stock market than ours given the European Central Banks bias toward easing vs. our bias toward tightening. However, the DAX, which peaked at 12374 back in April, has fallen all the way down to 9355, so I could say we should have a commensurate decline.
Remember, the people who control money just look at countries as investments these days, and we seem expensive vs. these other countries because of the Federal Reserve's policies. (Where, by the way, are all of those people who said a rate hike would be good for the economy?)
So, on a macro environment you would be a seller of our market.
How about technical? I find them to be helpful when all hell breaks loose. I had been looking at the flash-crash lows of Aug. 24 as something we would test. Well, we tested and they didn't hold. There are levels that several analysts I listen to have talked about that could hold, but they would still take us lower. So, technically there is no relief.
How about the other linkage, oil? We are beginning to see the benefits of the consumer spending, according to some of the big banks that have reported. But if you have been looking at the credit markets you would know that they are getting stressed out over oil.
We know the banks that lent to oil companies are taking a hard look at how much they are reserving. Maybe it's not enough given all the loans made to the mid- and small-sized players with stocks that are now selling under $5.
So it has become self-fulfilling and, as a money manager I follow wrote this morning, the stress is spilling over to the stronger credits. Oil would be something the weaker companies could live through without reorganizing if we were in the $40 per barrel or even in the high $30s if they could lay off oil in the futures markets at higher prices.
But in the high $20s, everyone loses.
So that's a very big negative.
Finally, there's earnings. I like the earnings so far if you back out the currency weakness. But guess what? This is the quarter that no one is backing out that weakness anymore.
Hence the pummeling IBM (IBM) is taking.
So we search for metrics to call a bottom, for, besides the really nasty sentiment and as bad as it was in 2011, we don't find solace.
Hence why the market seems so capricious and perilous.
When will it not be perilous and painful? When companies that have good yields that get to be great yields vs. the 10-year Treasury and we know they can pay them (right now we don't). And when the S&P 500 sells at about 15x earnings, a P/E multiple that I regard as cheap (historically) vs. the earnings I am seeing. We are at 16.3x earnings right now. ... So stay tuned.
Until then, the only place to hide from the pummeling in the markets is in cash....