The S&P 500 started Monday with nice gains and it looked like we were finally shaking off the Treasury yield blues. Unfortunately, those early gains fizzled and the index ended with the eleventh loss in three weeks.
While eleven down days out of fourteen trading sessions sound absolutely dreadful, amazingly, the index is little more than 2% from all-time highs. How does that happen???
As much as bears are trying to hype the inflation fear-mongering, most owners are not falling for it and are sticking with their favorite stocks.
While market folklore frequently warns of complacency, the thing most people forget to mention is just how long complacency lasts before the fall. Quite simply, when confident owners refuse to sell, prices remain stubbornly resilient.
How much longer can this complacency last? Well, if there is one thing we know about brutal selloffs, they are shockingly quick. At the rate this pullback is moving, the market is dropping an average of 0.14% per day. That qualifies as many things, but shockingly fast is not one of them.
As long as the index remains above 3,800 support, there is nothing to do but continue giving this market the benefit of doubt.
While this bull market shrugged off dozens of bearish headlines over the last year, maybe this interest rate story is the one that finally takes us down. But if yields are going to take us down, the first thing that needs to happen is for the index to fall under 3,800 support. Until that happens, keep trading this from the long side.
If there is one thing that gives me pause about this bull market, it is the absolutely dreadful price action from the FAANG high-fliers. Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), and Alphabet (NASDAQ:GOOGL), none of these stocks can get out of their own way and most are down more than 15% from recent highs. If something takes this market down, it will be a lack of leadership from these best-of-the-best companies.
On the other hand, if this bull market can hold it together for a little bit longer, these 15%+ discounts in these blue chip stocks will prove to be a great opportunity to buy more.
At this point, there are only two ways this plays out. Either the FAANG stocks catch up. Or they take everything down with them. I’m giving the index the benefit of doubt, but if the FAANG stocks continue lagging, I will have to reevaluate my outlook.
(As poorly as the FAANG stocks are doing, Tesla (NASDAQ:TSLA) is in an entirely different category and I’ll cover this former darling Tuesday evening.)