In terms of distribution of sales, this is a market path without equality

(Bloomberg) – You can look, but you won’t find a section of uselessness as widespread as the one that lands on Wall Street.

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Even in the long and legendary history of market failures, the range of losses is unparalleled, based on data dating back to the Great Depression. In five of the seven sessions on Thursday, at least nine of the 10 shares of the S&P 500 fell, a record series of widespread losses, according to Sundial Capital Research.

Such a picture, albeit a little less painful, prevailed in the asset classes. From government securities to corporate bonds and commodities, everything was down for the second week in a row, a period of sharp decline that has not happened since 2013.

If your opinion is that bear markets end with thunder and crashing, not whining, the last week is proof that something close to capitulation is happening. However, history has shown that this is not always the case. As often as not, the first outbursts of catharsis give way to long seasons of inertia, in which enthusiasm is not so much trampled as squeezed.

“There’s really nowhere to hide, and it’s a horrible environment for people who just aren’t used to it. And most of us aren’t, “said Michael Vogelzang, chief investment officer at CAPTRUST. “This is a reduction in valuation and every financial asset, and eventually real assets will start to soften because interest rates are the price of money.

This is the reality facing investors struggling with the world’s most aggressive tightening of monetary policy by the world’s central banks since the 1980s. As hopes for peak inflation plummeted after the worse-than-expected US consumer price record, the tremors of the economic recession intensified.

Hedge funds and quantity traders are tormented to get out of stocks. Down 10 of the last 11 weeks, the S&P 500 plunged into a bear market for the second time since the 2020 pandemic erupted. The index lost 5.8% for its worst week in March 2020.

In the benchmark this month, only 11 stocks are up, no more than 5%, while 38 are declining by percentages rounding to 20% or more. The average contractor, Boston Scientific, has fallen 12 percent since early June. In the Nasdaq 100, the biggest decline was in Docusign with 28%, followed by Micron Technology with 25%, followed by Applied Materials with 23% and Marvell Technology with 22%.

The specter of a recession has caused investors to start throwing away everything, even assets that appear to benefit from inflation as commodities. In these declines – gathering suddenly in the few stocks that rose this year – there were signs that the sale had turned into something other than voluntary, perhaps liquidations, forced by margin claims.

Take Monday, when the S&P 500 fell nearly 4% and energy stocks ranked the biggest losers despite rising oil prices.

“You really sell in the whole sector, in the size of the company, in the whole geography. This is a global stock revaluation based on central banks, “said Tom Heinlin, national investment strategist at US Bank Wealth Management. “Soon after, we will start talking to the companies. The question will be, is this just a Fed-based estimate, or should you now include lower-than-expected earnings growth?

This is a matter of increasing urgency. Even with everything going well, from the Fed through inflation to wars and disease, there is still a small minority of analysts who believe the sell-off is quite exaggerated.

The view is not unfounded. Despite all the upheavals, the economic markers that may be best suited for stocks – profits and earnings forecasts – have hardly moved, and although consumer sentiment has fallen apart, consumer spending remains stable.

“We will avoid a recession. It’s more like a mid-cycle hiccup, which we have a lot in the second year of the bull, “said Jim Polsen, chief investment strategist at Leuthold Group. “If I look at next year, I think you would be happy if he stayed here or bought right now.”

But Wall Street has shown a lot of stains in predicting downturns. For example, in early 2008, on the eve of the global financial crisis, analysts at the time forecast a 15% increase in S&P 500 profits. In the end, they fell by 72%.

As tempting as it may be to call a bottom, history suggests that bear markets usually take time to find a bottom, especially when accompanied by a recession. What looked like a cathartic sell-off in June 2008 – a loss almost identical to that in April this year – was followed by three months that were significantly worse and two more of almost the same size.

It was the same when the internet bubble burst. After reporting two consecutive quarters of giant losses in early 2001, the S&P 500 fell more than 10% in three of the next six periods.

Of course, there are examples of much faster solutions, including the last bear run in 2020, which turned out to be the fastest ever in just one month. This was due to unprecedented monetary and fiscal stimulus, something that is now beyond doubt when the Fed laser-focuses on fighting inflation.

For bulls looking for signs that stocks have fallen too far, too fast and are ready to bounce, there is evidence to support the view. During the five sessions on Thursday, less than 1.6% of shares in the S&P 500 held above their 10-day moving average, an indication of extremely low latitude, which had been compared only twice before in recent decades. , show Sundial data.

While charts like this can be seen as flashing an upcoming turning point for the market, such signals seem to have lost their value this year, according to Jason Gopfert, chief researcher at Sundial.

“Unilateral behavior like this has a strong history of opposition, but it was in May and we are at a lower level here,” he wrote in a note. “Everything is terrible and there is no constant interest among buyers.

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