This article was written by Michael Snyder and originally published at his Economic Collapse blog.
Editor’s Comment: It was only a matter of time before reality set in, and the effects of a decade of unlimited stimulus stopped the music. Optimism about Trump on Wall Street is not enough to keep the illusion up forever. Structurally, things are in for a fall. Things could bottom out anytime. Industries are hollowing out, debt is contagion and the market cannot remain high indefinitely.
Is this the beginning of a rude awakening to come? Or a slight tremor of future shocks to bear? Keep a close watch at what happens as the Fed raises rates, and some serious correction comes due.
Have We Reached A Turning Point For Stocks? Tuesday Was The Worst Day For The Stock Market In 6 Months
by Michael Snyder
The post-election stock market rally is officially over. After hovering near record highs for the past couple of weeks, U.S. stocks had their worst day in six months on Tuesday. For quite some time it has been clear that the momentum of the post-election rally had been exhausted, and a pullback of this nature was widely anticipated. But even though stocks fell by more than 1 percent during a single trading session for the first time since last September, it is going to take a whole lot more than that to bring stock prices back into balance. In fact, stocks are so overvalued at this point that it would take a total decline of about 40 to 50 percent before key stock valuation measures return to their long-term averages.
So we are still in a giant stock market bubble. All Tuesday did was shave about one percent off of that bubble.
Let’s review some of the numbers from the carnage that we witnessed…
-The Dow was down 237.85 points (1.14 percent)
-The S&P 500 was down 1.2 percent on the day
-The Nasdaq was down 1.8 percent at the closing bell
-Financial stocks were down more than 2.5 percent
-Overall, it was the worst day for banking stocks since the Brexit vote
-Bank of America is now down more than 10 percent since Trump’s speech to Congress
-The Russell 2000 (small-cap stocks) dropped about 2 percent
Some prominent names on Wall Street were warning ahead of time that this was coming. Marko Kolanovic was one of those voices…
Marko Kolanovic has done it again.
Last Thursday, one day ahead of the massive quad-witching where over $1.4 trillion in options expired in relatively tame fashion, the JPM quant warned of “near-term market weakness” and suggested “reducing US equity exposure. And, sure enough, JP Merlin’s Gandalf timed it impeccably yet again. To be sure, the jury is still out on what caused the selloff – lack of votes to repeal Obamacare, fears about Trump’s fiscal policy agenda, the market’s sudden realization that it is at 30 CAPE, or just a technical revulsion – what matters is that once again, like clockwork, Kolanovic called a key inflection point just days in advance.
Of course the mainstream media is telling everyone not to worry. They are insisting that this is just a temporary blip and that a market “correction” is highly unlikely. The following comes from CNN…
Few experts are predicting a correction — which is a 10% pullback from a market high. Even fewer see a bear market, a 20% drop or more, on the horizon.
Hopefully CNN is correct.
But it should be noted that experts such as Kolanovic are warning that more panic selling may be coming in the days ahead…
Furthermore, the modest but rising uptick in realized volatility is starting to cause outflows from volatility-sensitive investors the JPM quant calculated and, as a result, the break in short-term momentum may cause modest equity selling by trend following strategies.
In other words, in the absence of a positive catalyst over the next few days – and with uncertainty ahead of the Thursday Trumpcare vote only growing by the hour we fail to see one emerging – the double whammy of gamma positioning and the CTA momentum “flip” will be the catalyst for the next, extremely overdue, move lower.
It is going to take quite a few more days like today before we can talk about the kind of “financial crisis” that I have been warning about for a long time, but we may have already reached a key turning point.
So much of the post-election stock market rally was based purely on hope, and meanwhile the underlying economic numbers have continued to deteriorate. Corporate earnings are down, it is being projected that U.S. GDP growth will be about one percent during the first quarter, and used vehicle prices are dropping for the first time since the last recession…
In its March report, the National Association of Auto Dealers (NADA) reported an anomaly: dropping used vehicle prices in February, which occurred only for the second time in the past 20 years. It was a big one: Its Used Car Guide’s seasonally adjusted used vehicle price index plunged 3.8% from January, “by far the worst recorded for any month since November 2008 as the result of a recession-related 5.6% tumble.”
The index has now dropped eight months in a row and hit the lowest level since September 2010. The index is down 8% year over year, and down 13% from its peak in 2014.
When the Federal Reserve raised rates, that was very bad news for stocks, and if Donald Trump cannot get his Obamacare replacement through Congress that will be more bad news for stocks.
But even if there was no bad news, it is inevitable that stock prices would decline at some point anyway.
It is simply not rational to have price-earnings ratios up around 30. The only other times when price-earnings ratios have become so bloated were right before the stock market crash of 1929, right before the stock market crash of 2000 and right before the stock market crash of 2008.
Whenever it ultimately happens, the truth is that stocks always eventually return to their historical averages. And if a “black swan event” or two are thrown in, that could push stocks well below their historical averages.
Never before has there been this much debt in the world, and not even in 2008 were global financial markets so primed for a crash.
Many people get caught up in trying to predict what month or what day the markets will crash, and if you could predict that accurately you could make a lot of money.
But that is not the point.
What everyone should be able to agree on is that this temporary stock market bubble that has been fueled by reckless intervention from the Federal Reserve is not sustainable and that it is inevitable that stock prices will be a lot lower in the future than they are right now.
We should be thankful that this bubble has lasted much longer than it should have, because what is going to come after this bubble bursts is going to be absolutely horrible.
Markets tend to go down a lot faster than they go up, and when the coming crash finally occurs it is going to make 2008 look like a Sunday picnic.
So whatever you need to do financially, you should think about doing it soon, because the alarm bells on Wall Street are starting to ring.
This article was written by Michael Snyder and originally published at his Economic Collapse blog.
Michael T. Snyder is a graduate of the University of Florida law school and he worked as an attorney in the heart of Washington D.C. for a number of years.
Today, Michael is best known for his work as the publisher of The Economic Collapse Blog and The American Dream.
If you want to know what is coming and what you can do to prepare, read his latest book [amazon text=Get Prepared Now!: Why A Great Crisis Is Coming & How You Can Survive It&asin=150522599X].
Trying to make sense of this insanity is insanity. They have have that show on TV every day trying to explain this show, and they can’t help but bust out laughing once in a while.
They way that I see it, it ain’t over until they say it’s over. It’s running right now on autopilot. I guess if they really cared about anyone else they might stop the looting. Yeah, just like those other people stop looting to leave something that’s worth taking. And I see fracking as sucking the last bit of blood out of the country to be sold to the highest bidder.
Its called “PROFIT TAKING”. Rinse and repeat. That is the way the game is played. 🙂
Or it’s called High Frequency Trading when you are not the one doing the profiting daily right? 🙁
And why is it that when I first read your comment it said ‘Front Running’. Was your comment washed and rinsed? Or is it just me thinking that’s what you said and projected that? I don’t know, but I have seen other strange things around here too before. And no, I’m not getting sucked into caring about what goes on here as I once did. See, I really don’t care, because it really, really doesn’t matter and it will change nothing.
Just rambling, nothing personal.
No harm, no foul. 🙂
THE SKY IS FALLING!! THE SKY IS FALLING!!
This crash is way overdue. I for one am ready for it. The only way this country will be able to get on track is to rip the Band-Aid off.
Hey SGT…. where in Illinois are you? When SHTF we can be a 2 man commando team and take out zombies together! How far are you from Kenilworth?
Rich boy wants to be Rambo.
Hey just because I’m from the 3rd richest zip code in America doesn’t mean I don’t have plenty of guns and know how to use them 😉
What? you can only be a patriot if you are dirt poor?
Cars from Bavarian Auto Works are popular there up there right? And you put a tiger in your tank. Or is your tank a Tiger?
anonymous always has such intelligent things to say!
eppe’s gone now, but he brought a LOT of us shtfplanners together to put us in contact with eachother. i enjoyed talking to several of the group, and have made several friends across the country. eppe did MUCH MORE than most know about here on shtfplan. i miss his humor, he was an asset to U.S.
Yep,Eppe is missed.Was hoping to meet up one of these days with him,perhaps attend a one of shootapalooza parties he had.I hope all is well as can be with his wife and daughters.
i can’t help but HOPE he faked it to change his name to get away from WWTI,….but no….we would recognize him right away….just like we outed wwti’s new identity…..probly a lot of laughing people in heaven now.
I miss him too. We talked several times on the phone and we were going to meet up just like the rest of you have talked about. It still shocks me.
BCOD, when I first came to this site in July 2012, Eppe was one of the people who attracted me. I miss him and his humor also. Eppe R.I.P. you are sorely missed and not forgotten.
AZ, he’s over near Ottawa. Kenilworth? Chuck Percy’s old town.
Yup. Chuck Percy’s town.
Maybe we needed a drop to have another run?
Burn baby burn…the greedy bastards finally set themselves on fire. Good riddance.
OT: I hope to attract editors to a story. Google has analyzed 60 million roofs, by address, in the US to assess whether they will provide savings with solar. https://www.google.com/get/sunroof#a To preppers with a solar system, here’s what it means to you: You are on the list, and you can expect to have your house commandeered if the Google/Government complex decides it would be useful.
Well Tom,feel a lot of fed/corp. employees would die in that among other mistakes they will make when times get challenging.I would also say you know they will take it,fuck it,light the bitch up and start walking!
I do love folks who on roofs/cut fields ect. have “fuck google” spelled out,makes for great pictures!
According to the website, my area is not currently covered by Project Sunroof.
Holy Crap, that is crazy……
No rally lasts forever,even in more sane economic times.
Many will fall harder than others. I was born in poverty, experienced bankruptcy, and broke even. All the while I’ve kept my attitude up. Money does not make you happy. I’ve met enough rich people to know this.
Case in point. Back in the 80’s I knew a man whom was a head anesthesiologist for a large hospital. He was a multi millionaire will an 8 bedroom home on the waterfront. I was a punk kid in the military then and he sat me down and corrected my thinking about finances and being rich.
He was literally anchored to his job. He wore three pagers (one for his office, one for a personal practice and the other for family). He also had a bag phone. There wasn’t five minutes of peace for this man as one of these pagers would always buzz.
He communicated with his family often via post it notes on the fridge. Sleep was a luxury. He was in his 40’s and looked more like 60.
His dream was to go on vacations with his family. Unfortunately, he could only fly down during the weekends to be with them and come back on Monday.
He said that he knew many others in his position. He advised me not to pursue money directly but, pursue a career or experience that makes one happy, instead. Had this come from anyone else but him, I would have laughed it off.
Do know that “All bills eventually come due.” Make sure that whatever is due, that it’s not your soul.
He got addicted to moving the decimal point over. He could have quit the rat race as he had plenty of money. He didn’t follow his own advice.
In your 20s and 30s kick ass making money and advancing yourself, in your 40s cruise. There is a time to make money and set yourself up. You can do the 50-60 hr weeks over and over and you should. Get the 15 yr mortgage, invest but at some point playing the game is not winning, basking in the victory is.
Everything is a trade off. I don’t care what it is. And money does not buy you happiness. But it does give you the freedom to at least try that out and learn from it.
I’ll be back. I have to go and buy a lottery ticket. Though I think that only CIA insiders win when the jackpots get over a million dollars…It’s a joke….But it’s not really a joke….O.k., when it’s over $100 mil. for sure.
ALERT ALERT, ALERT, ALERT
This is most serious info I have ever come across in awhile.
Dirt of Michael Flynn, working to bring in radical muslims, and is working for Erdogan and Turkey? Say what?
The Iran deal does not exist, there was no deal. What did Trump mean when he said the there was a Iran deal?
By 2030, 265,000,000 population culling is in the works.
ALERT, YOU ALL NEED TO LISTEN TO THIS RIGHT NOW. THIS IS VERY SERIOUS. Over the next 13 years, war, nothing but war, civil war, revolutionary war. Mac, we may need to do a headline on this one, to increase the SHTF Bar.
Is Trump trustworthy? what deal was he talking about? let me know what you guys think.
The correction is overdue. Trump will be blamed. And it goes on and on.
Why was the market up in the first place?
No reason at all but manipulation news flash
Nothing has changed all indicators are in the
God bless trump but there’s no change in economic indicators there worse.
I think it is possible that this could be a turning point. So much going on right now.
Wars and rumors of wars countries all over the world are sticking there chest out at each other. ( One mistake could lead to a huge event )
Police state and surveillance cranking up all over
No good news economically
Federal reserve doing there best to cause a down turn
Terror attacks and foiled attacks everywhere
US troop movements to Syria and Korea
US troop movements to Eastern Europe
Strange things going on like so many stories about cannibalism.(Does anyone find this to be so weird like I do)
Earthquake and Volcanic activity
Many stories on Fukishima and other nuke stations
So many threats and things taking place. Any one could be the beginning. We all have the key question. When is the system coming down. We know its coming but when? It’s the burning question we all want to know.
I have no clue to when. Other than things we all talk about on here daily. I do know that for me right now is a time of being on alert. To many things happening not to be.
I hope we all are and I hope our powder is dry.
To those who knew Eppe wish I could here one of his jokes right now. I pray for his families peace. I know that one day I will meet him again.
To all my hope is that you are prepared and ready just in case.
Okay folks,off topic,have flour stored in sealed buckets.Did not know about bay leaves.If you get weevils in Your flour,can it still be eaten?Pick them out,never had to,curious! Thanks in advance.
Insane Clown President. Enjoy the collapse, Dumpf voters, you brought that on yourselves…
It was brought on us way before this president. This president has not even been in office long enough to have any policy that has anything to do with finances. We must go through this even with the pain. Thanks to past presidents. The most recent past president being the worst because he ran up debt that totaled more than any of his predecessors combined.
Hopefully you learned something but I fear you just may be a snowflake. lol
Mike in VA, good to see you back. I think Zlatko is just another troll living in mommy’s basement.
Mike, obviously a snowflake.
Hillary would have had an attack plan for Russia by now, broadcasted it beforehand, and would blow up the world, but Miss Zlatko is so clueless she wouldn’t figure it out.
We’re in this because of little do nothing
Know nothing people like you go to your safe
Place and play with your toys cupcake, man up!
Meanwhile, gold up today. Make of that what you will. I sure have.
Zlatko ?? Oh yes you were the sword swallower with B&B circus! You did that private show on Obama!
“…It was only a matter of time before reality set in…”
Hypothecated wealth trickles-down, at an arbitray rate, from a 5th Plank lending monopoly.
We can imagine that such things as gurus and investment psychology really exist.
They are either playing by knowable rules, or they are ignorant parrots.
(Pardon my typing. No edit function.)
This isn’t no big deal. It goes Down and it goes up and it goes down and it goes up.
BIG “Fing” DEAL!!!
While searching foreign sources I ran across a video by someone named Syrian Girl. She was exposing Whitehats, organ harvesting for black market, etc… inside Syria.
To see more go to youtube Lionel Nation and Syrian Girl. They discuss a colonization breakup plan of Syria designed by W’s SOS. They also discuss that planned changed and Iran is supposed to get control of everything including Iraq and Syria. (haven’t vetted anything about this story.)
The market is falling, debt ceiling exploded, no budget, healthcare fiasco, illegal immigrant fiasco, border fiasco, speech sensors, fourth amendment is gone and given willingly by the people after NY disaster, state and locals are broke selling budgets quietly to NGO’s to implement 21 and 30, healthcare industry sold out to UN/WHO under Ocare, Gov Globalized and under UN,…, its just not looking good at all folks. Very depressing.
One disaster from SHTF! I wonder what TPTB are waiting on? Any guesses??
SNYDER AGAIN? HO HUM I’M GOING BACK TO SLEEP!