Is This the Bottom?

By Alex Eule |  Monday, May 9 What Now? Investors hoping for a fresh start after a wild week didn't get their wish. Stocks continued to decline, with tech names seemingly in free fall. The Nasdaq Composite finished the day down 4.3%. The tech-heavy index is now down 27% since early January.  The S&P 500, meanwhile, has moved closer to the 20% decline that defines a bear market. It fell 3.2% today and is off 17% since early January. If the declines feel similar to the earliest days of Covid, it's not your imagination. For both the S&P 500 and Nasdaq, the last three days of trading represent the worst three-day stretch since March 2020. As of now, it's hard to find a good reason to declare the tumble over. Here's my colleague Reshma Kapadia:  One of the developments that have ended past bear cycles has been the Federal Reserve’s willingness to inject loads of excess liquidity to support asset prices and bolster domestic activity. But Gavekal Research’s Louis Gave in a note says this is unlikely to come to pass given the inflationary pressures the Fed is struggling with. “Rather than being investors’ friend, the Fed has become a foe intent on tightening monetary conditions. One can debate how aggressive it will be, but the Fed is unlikely to help out soon,” Gave writes. The prospect for some of the other factors that have helped end bear markets in the past also don’t look likely, according to Gave, including a collapse in energy prices that could stabilize the stock market, a meaningful decline in the U.S. dollar or assets that become so cheap that it draws deep value investors. “Today, alas, it is hard to find many major assets that are available at fire-sale prices. This is probably because the unfolding bear market is too young and has yet to impose enough pain on investors,” Gave writes. Reshma does list a few things that could turn stocks around. Read about those potential turnaround factors in her story here.  Here's the optimistic take: A few days after that bad three-day stretch in 2020, stocks bottomed for good. The subsequent rally has produced remarkable returns for investors. Even after the recent declines, the S&P 500 is still up 78% from its March 23, 2020 low. It's a fact worth remembering as you look at your portfolio in the coming days.

 

DJIA: -1.99% to 32,245.70 S&P 500: -3.20% to 3,991.24 Nasdaq: -4.29% to 11,623.25 The Hot Stock: Newell Brands +7.9% The Biggest Loser: APA Corp -14.9% Best Sector: Consumer Staples -0.04% Worst Sector: Energy -8.3%