D.I.Y Investing
Crypto Investor Since 2016, Trading Educator & YouTube Creator
The S&P 500 looks set to roll over because it skipped the retest that has followed every breakout for six years. Each time it broke to all-time highs, ran into price discovery, then topped and retested prior highs before starting over; this time there was no retest, while bond yields are soaring and war is driving them higher. A correction comes every cycle, more likely than not, though an 8% drop would be a pullback rather than a crash. x.com x.comÂ
US large-cap equities are vulnerable because earnings have not caught up with total market capitalization. The market is farther from its 200-week moving average than at any point in 18 years, and cracks are starting to show; staying bullish ignores these risks. Rate hikes remain possible, oil is still high, and yields may climb again, so now is the time for caution. x.com x.comÂ
High debt and rate hikes make a big US equity correction likely. Warsh said nothing useful despite hot CPI and PPI after two weeks of hawkish rhetoric, while the rest of the Fed fence-sits. A debt crisis is incoming, and some funds will blow up soon. Big caps are the last leg; the bigger correction could be something like 20%. It is not a good time to buy dips. x.com x.com x.com x.com x.com x.com x.comÂ
Strong corporate earnings make weekend crash panic a contrarian buying opportunity in US large-cap equities. Most individual stocks have already gone through bear markets despite the S&P 500 nearing record highs; weekend social-media panic rarely leads to a genuine economic downturn and instead offers long-term investors an attractive entry point. x.comÂ
US equities look vulnerable to a significant correction before another sustainable rally: 3.4% inflation, roughly $100 Brent, a 5.2% 10-year yield and just 29K new September jobs contrast with fresh index highs, while the Magnificent 7 make up 34.9% of the S&P 500. Strong AI earnings expectations and liquidity could keep shares elevated longer than expected. x.comÂ
US large-cap stocks look set for a weak October and a needed reset, as transports and now financials have broken down, often a week or more before the major indices. Midterm years have brought index drawdowns of about 10% in 2014 and 2018 and 14% in 2022, which would put the S&P 500's 7,000-7,200 area in focus. Even an Iran resolution would likely see its initial pop faded as liquidity rolls over in early October and hard by mid-October. With the VIX in the 14s, protection is cheap. x.com x.comÂ
US stocks could face a meaningful correction because the macro backdrop is deteriorating across bonds and inflation. The secular bull market is still expected to continue afterward, with a key factor potentially limiting the correction's severity. x.com x.comÂ
The AI-led S&P 500 peak will likely end somewhere between 2000 and the Nifty Fifty: painful, but not a 34-year Japan-style wait. Breadth is ugly, with record index highs while most stocks bleed; @RestlessCentaur notes over 70% of S&P 500 stocks are down more than 10%. Today's leaders trade around 30x forward earnings, while the 2000 and Japan tops were two to three times pricier. x.com x.com x.com x.com x.comÂ
Capital is rotating out of AI capex into areas it starved for two years. Health care, airlines, defense and metals are where the market wants to be for the six weeks to the December 9 Fed meeting; gold and silver are bought on every dip. Risk is still being taken elsewhere: if S&P futures hold 7,700, the rotation carries the index; if they lose it, this was a correction in disguise. x.comÂ
Hyperscaler credit stress and weak financials-versus-staples leadership warn of downside risk in the S&P 500 consolidation. Spreads have broken July wides, though an upside breakout is probable if financials stabilize. So far, tech weakness has lowered yields as Fed hikes are priced out, letting defensives rally and the S&P chop. If the Fed signals Nasdaq weakness won't stop tightening without better data, the tech-yield link could break in an uncomfortable, 2018-like direction. x.com x.com … Show more
The US large-cap correction isn't over until interest rates top and bonds bottom, which hasn't happened yet. The summer 2023 S&P 500 correction ended right when bonds bottomed in October, with TLT trading massive upside volume, and there is no sign of that now. Higher rates keep pressuring real estate, where lots of money has been trapped since 2022, a possible source of downside dislocation, and an aggressive further rise in rates could bring a panic bottom. x.com x.com x.com x.com x.com x.comÂ
