Is the worst already behind us?

Free After-Hours Analysis: 

The S&P 500 spent Monday bouncing between modest gains and losses before finishing the session almost exactly where it started.

An afternoon slump was sparked by news the Fed is willing to move in half-percent increments as it raises interest rates this year. That is a little more aggressive than some investors expected, but at the same time, a 25-point midday give-back on the heels of last week’s towering 300-point rebound is hardly anything to worry about.

Two steps forward, one step back. That’s the way markets work, always have, always will. Given how much ground we covered last week, it wouldn’t surprise me to see a bigger than usual step-back, even something in the range of 150 points is reasonable.

But if a 150-points pullback is reasonable, Monday’s 25-point dip still had a lot of room left to run, so why did prices bounce and close flat?

Very few dip buyers are looking to cash in profits and that afternoon weakness vanished by the close.

At this point, more people are looking up than down. And that’s not a surprise. It’s been more than two months since this correction kicked off, meaning all of the worrywarts have been given plenty of opportunities to abandon ship. And more than that, all of these nervous owners sold their stocks to dip buyers demonstrating a willingness to hold stocks in this headline environment.

While the bearish headlines haven’t gotten any better, at some point, we run out of people willing to sell those headlines and that’s when prices stop falling. And it appears like this market has crossed that tipping point.

Don’t be surprised if we slip a little further in a very normal and healthy step-back this week, but unless the headlines get materially worse (ie $150/bbl oil, 10% inflation, or Russia bombing Poland or nuking Ukraine), expect stock prices to find their footing quickly after taking a quick break.

The pullback from January’s highs already priced in all of this bad news and as bad as things seem, stocks have already started rallying on “less bad than feared”.

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