@theMarket: Wild week for stocks / iBerkshires.com
By Bill SchmickiBerkshires columnist
In just one week, the major averages have seen a 3 percent swing from low to high. These gyrations go hand in hand with the high level of indecision that investors are currently feeling. Can you blame them?
Last week, and until the end of Monday, the S&P 500 Index was down 3%. Over the next few days, all of those losses were recovered, and then some. While investors breathed a sigh of relief, I don’t think we’ve come out of the woods yet.
Most strategists attribute the decline in stocks to the free fall in yields. The ten-year US Treasury bond (the “tens”) fell 1.13% from its lowest level on Monday. At the same time, the US dollar has soared and broke through several levels of technical resistance. Wall Street traders feared that something “big and bad” was going to happen.
Equity investors decided to sell first and ask questions later. It didn’t help that we are in the middle of summer vacation. On low volume days like we have now, traders can push stock prices much higher (or lower) than normal. The only thing I can say for sure is that stocks in the financial markets over the past week were not normal.
Bond yields rarely move within such a wide range in such a short time. This week we have seen the yields on the ‘tens’ drop from 1.13% to 1.30%, then back down to 1.25%. These are massive moods for the bond market.
The price of oil fell to $ 65.56 a barrel on Monday, which is more than 7% drop in a single day, but now, days later, that same barrel of oil is selling for $ 71.75 . Heck, the price of Bitcoin suddenly appears to be a pattern of stability against some movements in stocks, bonds and commodities this week.
Fed policy, interest rates, deflation, inflation, stagflation and now the upcoming battle for the debt ceiling round out the list of worries that worry investors.
Monday’s stock market crash may also have something to do with the Coronavirus Delta variant. As I have warned readers, new cases of the Coronavirus Delta variant are on the increase and should be taken seriously. I guess the fear of Delta’s impact on economic growth is finally making itself felt among investors. But the event I fear most is a vaccine-resistant coronavirus mutation, spawned in the huge unvaccinated population.
We have already witnessed a number of new viral strains that attack the effectiveness of our current vaccines. Take, for example, the recent findings by a team of researchers at New York University that the Johnson & Johnson single-injection vaccine is much less effective in preventing infections with the Delta variant coronavirus and other forms. mutated virus than earlier strains. An Israeli study found that the Pfizer vaccine is less effective against the Delta variant than we thought.
What would happen if a future mutation was found to be resistant to all or some of our vaccines? I am concerned that until the majority of the world’s population (including 40 percent of the US population) are vaccinated, the likelihood of such an event increases every day.
Market shares this week make me believe that we will see more volatility in the coming weeks. The major averages may not fall out of bed, entirely, but they could. It’s been a long time (last October) since we haven’t even seen a 5% drop in the broader market.
So far we have avoided a general market downturn. Instead, we have seen a series of incremental corrections across various sectors. The transportation index, for example, has fallen 12% since May. Some stocks of raw materials and raw materials also suffered similar large corrections.
My advice is to prepare for a few more weeks like this one. They may not all end up in favor of the bulls either, as July through August is generally a weaker time for stocks. You may want to consider a vacation in the coming weeks and let the markets resolve some of their issues.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. Its forecasts and opinions are purely personal and do not necessarily represent the views of Onota Partners Inc. (OPI). None of its comments are or should be taken as investment advice. Direct inquiries to Bill at 1-413-347-2401 or email him at [email protected].
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