We should be calling this bear market is risk assets, "the inverse Gump," because, quite simply, we always knew what we were going to get.
Once the Federal Reserve said it planned to beat back inflation by aggressively raising interest rates, the punchbowl was being taken away from the party, as in all prior such cases, it spelled the end of a runaway bull market in equities and other shiny, but risky objects.
Speculative sentiment collapsed first, as it always does, as the so-called "meme stocks" gave back the great majority of their pandemic-era gains.
The Pied Piper of the internet who preached that "stonks" always go up, or the "Apes" with diamond hands riding their trades to the moon proved to be, as always, right about the short-run but, as John Maynard Keynes promised, were dead in the long-run.
As inflation accelerated and rates rose, pandemic-related shortages continued and a war raged on in Ukraine, the results and the impact were both, again, utterly predictable.
Stocks with impossibly high price/earnings multiples led the overall market lower before higher-quality names, even those with immense global footprints and strong balance sheets, joined the bear market in equities.
Yes, Forrest, this is a bear market.
Damage has been done
Bonds have suffered their worst first quarter performance on record. The NASDAQ plunged 30% from its all-time high, the Dow is down 12% and the S&P 500 down almost 18% from its most recent record close.
While not meeting the explicit criteria of a 20% decline in either the Dow or S&P, it's good enough for government work.
The small cap Russell 2000, similarly, is down almost 25% from its peak. The average stock is down more than 25%, so if it rumbles like a bear, snuffles like a bear and well, you-know-what's like a bear … we're in the woods.
So, too, are global equity markets with just a handful of exceptions.
And now, the crypto market has collapsed amid a crash in a so-called "stable coin," a Wall Street oxymoron if there ever was one.
Not backed by anything but a mathematical equation, no treasuries or actual cash, the UST "broke the buck" in spades, now worth less than one-third of a dollar, while a similarly situated "stable coin, its so-called sister token, "LUNA" has lost 98% of its value.
The full story there has yet to be written but, as many of us have maintained all along, crypto currencies are hardly currencies at all. And stable coins … well … stable coins, are wildly unstable, at best, Ponzi schemes at worst.
They are vaporware that passed for a digital store of wealth.
There are 12,000 such digital tokens in the crypto-sphere. And they were all part of a big ol' bubble, as we all knew, all along.
Pity, quite literally, the poor El Salvadoran whose country adopted bitcoin as legal tender at $65,000 only to see its purchasing power decline by 50%. They may as well have moved to a Turkish beach, taken the same beating on the value of the Lira, while enjoying a vacation on the Mediterranean Sea.
Meantime, NFT sales have reportedly plunged 92% from their most recent torrid pace of transactions proving that "invisible friends" can only accompany us through childhood, not through adult life when real money is on the line.
Looking for the low
Why anyone is surprised is beyond me.
We noted as early as December of 2021 that if the Federal Reserve was intent on tightening credit conditions in 2022, and beyond, that the bull market would come to an end, especially if it was accompanied by a meaningful and disruptive war … we were, in fact, quite clear about those combined risks very early in the new year.
The momentum low for stocks may have occurred on Monday, but in technical terms, stocks suffer a momentum low and then a price low.
In the Great Financial Crisis, the momentum low, according to my friend and veteran technical analyst, Helene Meisler, hit in October of 2008.
The price low occurred on March 9, 2009. Warren Buffett has long maintained that you always find out who's swimming naked when the tide goes out, which it now has.
I would maintain that Wall Street is not a box of chocolates. You simply always know what you're going to get. The chocolates never change, just the boxes they come in.