The NASDAQ 100 is now in correction territory (down more than 10%), and the S&P 500 has fallen by more than 9% from its recent high. All major indexes—including junk bonds—are trading below their 50- and 200-day moving averages. Simply put, the market is not rewarding risk.
There is a time to invest, and there is a time to protect capital. We are currently on defense. Nothing good tends to happen below the 200-day moving average—or after midnight.
I am waiting for a Follow-Through Day (FTD)—a signal that the market may be putting in a bottom, marked by a strong rally (at least 1%) on above-average volume. After that, I will look for leadership: stocks breaking out with strong volume, accelerating earnings and sales, and double-digit forward estimates—the fastest horses out of the gate.
The market will likely turn higher before the war ends, as it begins to price in that outcome.
War is expensive, and markets are already reflecting those costs through rising interest rates. Sustained higher oil prices will ripple through the economy, pushing producer prices higher and ultimately feeding consumer inflation.
To fund war-related spending, Congress will likely increase fiscal outlays, while the Federal Reserve may be forced to monetize debt—effectively printing money to absorb Treasury issuance. More money creation risks fueling further inflation.
While the Fed can influence short-term rates, the market controls long-term yields—and it is demanding higher rates amid rising inflation expectations.
Higher rates pressure housing and economic growth. When slower growth meets rising inflation, the result is stagflation.
A recession could eventually break inflation—but that comes with its own challenges. In that environment, traditional long-only strategies struggle. However, downside strategies—such as shorting—can be effective in bear markets, just as long exposure works in bull markets.
Until a clear uptrend emerges, cash remains a position.
Remember: a 20% loss requires a 33% gain to break even.
Cash is King.
In him our hearts rejoice, for we trust in his holy name. Psalms 33:21