It was a painful week for many market participants, but a strong bounce started at midday on Friday and helped relieve a little of the sting.
Stocks were battered on Thursday and broke sufficient support to create a technical correction. The selling picked up steam on Friday on what looked like forced selling at times, but the pressure finally eased, and stocks were able to bounce all afternoon and close at their highs. Breadth finished at 5,700 gainers to 2,100 decliners and sentiment made a dramatic shift.
The intense selling was triggered primarily by concerns about rising interest rates and the potential for inflation. Better-than-expected jobs news on Friday morning helped to feed the narrative that the economy is strengthening so fast that it will create inflationary pressures, especially if fast growth occurs at the same time that $2 trillion in stimulus hits.
What really upset the market this week was that Fed Chair Powell didn't offer much comfort to the bond market. He reiterated that inflation is still well under the target rate and won't become uncontrolled. The bond market was not satisfied, and that was the excuse to hit equities hard.
Equities have needed some corrective action for a while, so this turned out to be a very convenient excuse, but it doesn't make it any less painful if you had heavy, long exposure. What made it much worse for many market participants was that some of the most favored groups and small-caps were hit the hardest. Sectors such as biotechnology, SPACs, and cannabis were brutalized, but it was very correlated selling, and little was spared.
It is premature to declare that the worst is over, but the intensity of the selling this week will go a long way toward helping a bottom to form. Many "good" stocks were mistreated, and they will come back once the emotions cool off and the correlated selling ends.
Have a great weekend and rest up. I suspect that we are going to be very busy next week.