After a very scary decline and then an impressive rally, the question most investors are probably asking themselves is, where are we now?
In order to get our bearings, let's review where we've been. Recall that as of the market close on Christmas eve, the bears had pummeled the S&P 500 for a loss of -19.78% from the September 20th high water mark. Through December 13th, the decline had been orderly and fairly well contained. There were worries over this and that, but since the February/March lows had not been exceeded, a great many analysts (including yours truly, truth be told) were calling the action a garden-variety correction.
But then the bottom fell out. Over the next 7 sessions (one of which was a half-day), the S&P dove an eye-popping -11.3% as technical levels snapped like toothpicks, algos ran in high gear, and a bearish market environment took hold.
The thinking was the market was facing a triple threat of negatives that would surely end in the type of bear market cycle last seen in 2007-09 and 2000-02. It was a combination of fears over (1) the Fed overshooting again and pushing the economy into recession, (2) the trade war with China dragging on and sending the global economy into recession (or deeper into recession, depending on who you talk to), and (3) the simple fact that both earnings and economic growth were slowing both at home and abroad.
So, there it was. A bearish narrative that by late December became hard to argue with. This was going to end badly, we were told. Credit conditions were tightening - a lot as folks began to realize that a boatload of low-quality debt needed to be refinanced soon. The words contagion and systemic risk began making the ...