It was the worst loss of the year for the NASDAQ, and its worst one-day performance since falling 427 points this past October 28. The NASDAQ closed at an all-time high of 14,095.47 on February 12. Since then it's down nearly seven percent, hitting a closing low of 12,609.16 on March 8 which put it into correction territory with a 10% loss from the prior high.
While the NASDAQ continues to lag the other indices, it's worth noting that the gap continues to be substantial. The Dow and NYSE Composite are less than one percent off record highs, while the S&P is less than two percent below its record close on Wednesday. While the NASDAQ has been the leading index on the way up through the post-sub-prime-crisis years, it makes sense that it would be the leader on the way back down.
So, if the NAZ is falling faster than the other indices, it would serve as an indicator of what's to come in a simplistic sort of way. Also, if investing, making money, and keeping money safe was that easy, wed all already be rich and there would be no reason to invest in anything. We could just hand down our wealth to the kids and they could ride off into the future with saddlebags full of dough.
In the real world in which we're forced to engage more often than we'd like, there are such things as taxes, expenses, health issues, car accidents, natural disasters, and untold numbers of human errors which make life a little less bearable than a stock market and cryptocurrency utopia. It's against this real world backdrop to which we have to gauge our appetite for risk, ability to earn, saving discipline, health, and future expectations. The calculations and extrapolations often collide with unknowns, making precise future predictions all but impossible. The best one can hope for is to hold reasonably correct assumptions about the various elements in finances, keep to some sane degree of caution versus risk and have a strategy designed to reach expected outcomes.
In markets such as exist today, where passive investments have outperformed active trading regimens, one big, bad downturn or mistake can take everything away in a rush. Investments are crowded. Certain market segments are overcrowded and overvalued, ripe for profit-taking. Therein lies the risk to markets, investments, whole economies. Nobody can reasonably assume that stocks will continue to rise, virtually unimpeded, forever, though that's been the case for more than 12 years, since stocks bottomed out in March of 2009. Eventually, the party ends, everybody staggers home at some degree of happiness or depression. The smartest will have left early. The happiest will have left early, returned, had more fun and gone home long before the last stragglers find the door.
It could be reasonably discerned that we're getting close to that last straggler condition in markets. On the contrary, the party seems to be at its peak or just past it, roaring along, which is usually when the police arrive, alerted by some neighbor who isn't exactly appreciative of loud noises late at night. When that happens, either everybody quiets down or some people get pulled off in a squad car. Shortly thereafter, a bunch of people leave, but the celebration continues, albeit at a less-enthusiastic pace. That's probably where we are today. People are still throwing money at stocks, cryptos, commodities, but they're a little more wary of the outcomes. They've made some money and don't like losing (nobody does). Money is still loose, but the rapidity of the rise in yields on long-dated treasuries augurs ill for the future. Yield on the 10-year note (1.71%) reached its highest since January 2020. For the 30-year bond (2.45%), we have to go all the way back to November, 2019, for an equivalent.
These higher bond yields are broadcasting a message that business conditions are tightening. The "recovery" meme is for rubes. If the economy is supposed to be recovering from the corona crisis, why then are stocks at all-time highs, bitcoin close to record highs, and incomes higher in 2020 than in prior years. The twisted logic of the pandemic benefited a few large companies (Wal-Mart, Facebook, Google, Amazon, et. al.), but people still went about their routines, despite having to take different routes to get there. The drop-off in economic activity was contained largely to entertainment, travel, and leisure. Most other businesses of size carried along as usual and most of the effect was in the summer and fall of 2020. Most people have resumed somewhat normal routines. Any recovery that's going to happen isn't going to produce much of a bang.
There are still gains to be made, but maybe not in the usual places. Even though there will be millions of $1400 checks being issued over the next few weeks, not everybody is buying stocks with all of it or even some of it. Only about 15-20% of that money is going into stocks or cryptos. The rest is going into paying bills, shoring up households, savings. When that money hits the markets - by April 15, more or less - one might as well ring a bell, roust up the sleepers and send them on their way. The party is going to wind down. The NASDAQ and the 10-year note yield popping upwards of 1.70% are providing clues that it's time to take a step back, watch, learn, listen, and look for opportunities.
Friday is known as a quad witching day, on which stock index futures, stock index options, stock options, and single stock futures expire simultaneously. These occur on the third Friday nearing the end of each quarter, March, June, September, and December. There's usually a bit of volatility as fund managers square up positions and money is reallocated, though there's often less drama than the pundits would have us believe. Friday may be a good day to take some profits, pare down losses (who has those, and what are they?) or at least take account of balances and devise a workable exit strategy.
At the Close, Thursday, March 18, 2021:
Dow: 32,862.30, -153.07 (-0.46%)
NASDAQ: 13,116.17, -409.03 (-3.02%)
S&P 500: 3,915.46, -58.66 (-1.48%)
NYSE: 15,589.07, -142.07 (-0.90%)
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