The Market Has Brainwashed You – Here’s the Cure

The market has warped your mind.

An easygoing stock market that never dropped more than a few points in a day has given way to a stampede of selling.

Most investors simply weren’t ready for the sharp pullback. Some folks are even calling it a crash.

Gimmie a break. Just imagine what would happen if the Dow dropped more than a couple hundred points!

Let’s get to the details…

The morning started off quiet. Then a wave of relentless selling knocked the major averages off their perch.

Volatility is creeping back into the market following a historically quiet run for stocks.

The S&P 500 finally broke its silent streak. The S&P 500 hadn’t seen 1% drop since Oct. 11. It finished Tuesday trading down nearly 1.25%. This 109-day streak was only one day shy of tying the record set in 1995.

Yesterday’s action certainly felt like the market slapped us in the face. You might even think the world is crumbling. But I assure you – we are not experiencing a crash right now.

The market has brainwashed the masses. The lack of any major moves higher or lower has lulled everyone to sleep. Despite the gaudy headlines, the major averages hadn’t shown much spunk recently…

Forget finishing 1% in the red yesterday. LPL Financial’s Ryan Detrick tells us this is the first time the index posted an intraday swing of more than 1% in a record 64 days. Saying the market has enjoyed smooth sailing so far this year is the understatement of 2017.

But Tuesday was a true risk-off day. The market’s safety trades were the only significant names that finished the day higher. Utilities were easily the best performing S&P sector. Gold also gained $10, erasing its March losses.

Meanwhile, sellers beat small-caps to a fine pulp. The Russell 2000 landed with a thud after sliding more than 2.7% on the day. This drop swings small-cap stocks into the red for the year.

Then came the banks. Financial stocks have been one of the market’s biggest winners during the post-election rally. These names were hit especially hard by profit taking on Tuesday. The Financial Select Sector SPDR fell nearly 3%.

Of course, the financial press has conjured their own reasons for the decline…

“The twin worries here for the banking sector appear to be both a flattening yield curve and concerns over President Donald Trump’s difficulty to get a comprehensive tax reform package done given the issues the administration has had with its initial plan to repeal and replace Obamacare,” Yahoo Finance reports.

Sure. Whatever fits your narrative.

Goldman Sachs (NYSE:GS) might have plunged almost 4% yesterday. But the Vampire Squid is still posting six-month gains of 45%. That’s a blistering pace for mega cap Dow component.

Of course, yesterday’s drop has stirred up all kinds of old concerns about the market’s health. It’s easy to ignore almost anything when we go nowhere but up. But since stocks are falling out of bed, now’s the perfect time for a freak out.

Cue the market valuation concerns!

A new Bank of America Merrill Lynch survey says that fund managers believe stocks are more overvalued than they’ve been in 20 years. More than 80% of those surveyed believe U.S. stocks are overvalued.

“Since prices lead fundamentals, the fundamentals better start picking up the pace in order to justify such extended valuations,” CFRA chief strategist Sam Stovall notes.

We don’t have to dig much deeper to pull up more market concerns. The list goes on and on.

But now’s not the time to panic. The market has posted an extremely strong start to the year. Don’t let a spring pullback knock you off your game.


Greg Guenthner
for The Daily Reckoning

The Daily Reckoning