Today’s Market Update For January 21, 2022

Stock Indexes Down… Most Stocks Down More

Ugly is not a pretty word. One use of the word is defined as “threatening trouble or danger.” That describes the stock market now. In fact, most stocks are uglier than the major market indexes now. Another way of defining “ugly” is “an unsightly appearance or unpleasant.” That applies to the picture above. So, why do I call the stock market ugly now? Because it is. Today I want to share some facts that will put the market’s current less-than pretty condition in perspective, and why most stocks look worse than the market suggests. For certain, the bears are in control over the bulls now. The recent sharp sell-off has been brutal. Yes, it may be overdone. Though, others argue there’s more room to the downside left. Either way, the market is in correction mode, most individual stocks have fallen more and a bear market is a real possibility from here.

The stock market finished a shortened week lower, notching a third-consecutive week of losses, in what has been a volatile start to 2022. In fact, the VXX volatility index soared over 25% this week. As has been the theme over the past sessions, early gains faded and succumbed to concerns over the economic implications of a potentially more aggressive Fed amid persistent inflation pressures, and the expectations of rising interest rates. That was especially true yesterday. After the Nasdaq opened strongly and reached a 2% gain early, it reversed hard and closed down over 1%. That is a bearish move. Today the Dow fell 450 points (1.3%), the S&P 500 declined 85 points (1.9%) , and the Nasdaq Composite closed 385 points (2.7%) lower at 13,769. All in heavy volume. Now, here are facts to consider to gain more insight about the recent drop in the stock market and market of stocks.

• Forget 2021 index returns. More realistically, the Nasdaq year-over-year from today is up 1.76%. The few stocks that more almost entirely accountable for last year’s gain in the index have given most al of that away in 14 trading days.
• As noted above, the market has recently opened strong and closed weak. That is a classic bear market trait. For the first time in 20 years this week, the Nasdaq was up 1%+ intraday and closed down more that 1% on back-to-back days.
• To make the weak closing market condition more impactful, this month has experienced the worst last hour of daily trading since 1987!
• Today’s declining stocks on the Nasdaq were 1323 vs.28 advancers. That is over 47:1.
• The current losing streak for the Dow is the longest since February of 2020.
• The S&P 500 and the Nasdaq had their worst weekly decline since March of 2020.
• This month is on track to be the worst month for the Nasdaq since 2008.
• The Nasdaq closed today more than 15% from its recent record high.
• The Nasdaq closed below a key support price level of 14,000 for the first time since last June.
• The Russell 2000 small cap stock index is now at a 52-week low.

That is all about the U.S. stock market. As I always want to stress, we have a market of stocks — more important than stock market. They are mostly performing worse that the market now. The biggest sense of that is to know that on 6% of S&P 500 stocks are currently trading above their 10 week (50 day) moving average. Or, 94% are not. This is an occurrence usually reserved for bear markets. As I noted the Nasdaq is 15% off its recent high, the majority of publicly traded stocks are down more.

There are more ugly market and stock stats now, but these should provide perspective.

Now what. Well, reasons to expect more tough days ahead. For starters, earnings season is here. A flood of reports coming next week. So far earnings news has devasted stocks. Netflix today is a prime example. The major money center banks in the last few days. Also, the Fed speaks next week, and that has been the market’s kryptonite for months. There is also reason to expect a market rebound from “oversold conditions”. In my experience, though, they are often false starts. Beyond earnings and the Fed’s monetary game plan (mainly interest rate hikes), the macro concerns range from global economic strength to geopolitical developments, the pandemic and inflation’s impacts. Now is a time for a good defensive plan, cash, and balanced approach. Hedging techniques are proven to thrive in a market dive.

“Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard.”
-Warren Buffett