Stocks started the day in a foul mood after the expected Republican victory in the election was a trickle rather than a wave. There is still likely to be gridlock, but the positive sentiment that had been building for a couple of days, was squashed.
The selling was fairly mild at first, but then a red wave of selling hit the crypto market again. Rumors that Binance might not complete the deal to buy the troubled exchange FTX triggered more selling, and then at the end of the day, when Binance confirmed that it had pulled out because it was beyond its ability to help, cryptocurrencies fell even further. Bitcoin ended the day down more than 10% and barely held the $16,000 level.
Although this doesn't directly impact most equities, the collapse of the crypto asset class is causing tremendous fear. It also may push certain institutions to liquidate equity exposure to deal with the crypto losses. What is going on here is not unlike the 1987 crash in equities. No circuit breakers are in place, nor are other ways to stop the cascading liquidations, and since there is no clear intrinsic value, there is no support.
The stock market is already struggling with an ugly bear market, and this drama in the crypto asset class is feeding the anxiety that already exists.
Another issue weighing on the market is concern about the consumer price index report that is due on Thursday. The market has had a series of negative reactions to this report, and there are few signs of a sustained downtrend in inflation.
The action today was particularly brutal for many individual stocks. In the Russell 2000 index of smaller stocks, there were close to 500 stocks with losses of 5% or more. New 12-month lows expanded to over 620, and breadth was more than four-to-one negative.
The one positive is that no one can say that the market is optimistic about tomorrow's CPI report.
In many regards, this is a classic bear market with a crisis in a certain area, like cryptos, that is causing a lack of confidence in the whole financial system. Stay patient, and great opportunities will eventually develop.
Have a good evening. I'll see you tomorrow.