A widely followed fear index is now 15 out of a 100. If the CNBC account is correct this index is higher today than it was in January 2009.
The S & P 500 is now at its lowest levels in almost 2 years as there is a massive reset in the “must own momentum names,” many of which are down over 30% since the start of the year. Many of these momentum issues are in the NASDAQ which is now down 19% in about seven months.
The S & P 500 is down about 12% since January 1 and currently trades at 15.3x earnings, in line with the average of the past five years. Analysts are projecting little profit growth in the next 12 months as the benchmark is trading at 15x estimated profits
As noted above, the macro momentum bubble has been crushed and if history is of any guide monies will gravitate to value stocks and small cap stocks, companies that are grossly undervalued, under owned and under followed, trading at a massive 40% discount to the market according to Bloomberg.
For many the last 25 months have been extremely difficult where nothing makes sense.
What will cause a change in sentiment? It will be some unexpected event, something that gives confidence that the global economies are not falling into the abyss. Fortunately the bar is set low.
Yesterday, led by the NASDAQ equities plunged again. Shares however retraced about 35% some of their decline with the Dow ending lower by 1.10% and the NASDAQ lower by 1.9%.
What will happen today?
Last night the foreign markets were down. London was down 0.92%, Paris down 2.27% and Frankfurt down 1.65%. China was closed for its New Year, Japan down 5.40%and Hang Sang up 0.55%.
The Dow should open moderately lower even as oil is rebounding. European bank shares are still declining as fears are mounting that the continent’s banks did not take the actions necessary as the US counterparts did seven or eight years ago.
Domestically, technology, biotech and Internet shares appear to be the greatest decliners. The NASDAQ Internet Index has slumped 8.3% during the past two sessions, the greatest two day decline since 2008. The vastly over owned biotech index is down over 40% in six months. Ouch!
The 10-year is up 10/32 to yield 1.71%.
THE SELLING WILL END WHEN ALL ARE INCREDIBLY FEARFUL
Ken Engelke
Chief Economic Strategist Managing Director
The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.
