Market Update March 28th, 2018

Greetings from sunny Boise Idaho!
Stocks corrected in February primarily due to sudden fears of rising interest rates and potentially rising inflation. But the severity of the correction was mostly due to the failure of synthetic portfolio insurance products (inverse VIX option products and risk parity products that hedge funds sell). That triggered a mechanical sell-off which had nothing to do with fundamentals.
Regardless of what triggered the sell-off, when they happen, heightened investor fear returns and investors and traders start “stepping on the flowers and pointing out the weeds”, looking everywhere for more reasons to be fearful. This is normal. Especially after a long period of calm, rising markets like we had last year, when the major indexes rose every single month.
The markets initially rebounded rapidly, but unfortunately never fully re-tested their February 8th lows. The good news is we are now re-testing those lows, which should set the stage for a resumption of the bull market soon.
What is different this last few days is the momentum stocks are leading the way down for the first time. The handful of everyone’s favorite growth stocks had continued to rise despite weakness in the broader markets. That narrow leadership was a sign that traders and investors were still on heightened alert, looking for reasons for the market to re-test the February lows.
We have also been between earnings seasons, when other news dominates the headlines, and there have obviously been plenty of “potential” negatives to focus on lately.
Now that the market leaders are finally having their turn correcting, while some other sectors are showing some relative strength, is a healthy sign that this correction is nearing completion.
It’s time to catch our breath. Markets remain in a washing machine and may continue to oscillate for a while longer, but I wouldn’t worry too much. The market is manic. It reacts, it doesn’t think. But this should be building a good base for the next market up-leg.
First quarter earnings season will be here very soon, and I think it will be the best earnings season of my lifetime. Wave after wave of stunning earnings news across multiple industry groups will soon dominate the headlines, making this possibly one the last really good buying opportunities of this bull market.
For now, call or email me if you get too concerned.