In recent months, concerns have been building that the fast reopening of the economy combined with shortages of materials and labor would create inflationary pressures. Equities were a little nervous about the issue, and bonds dropped sharply in February but never really embraced the concern. Higher oil and commodities prices and strong employment growth seemed to confirm the issue, and the Fed even spent a tremendous amount of time assuring the market that inflation was only transitory.
Well, not only have the fears of inflation disappeared, but the worry now is that economic growth will disappoint. Slower economic growth was not a problem before because the market has always counted on more stimulus from central banks, but there just isn't much of an appetite for more after the trillions issued in the last year.
Lingering concerns about a COVID variant and news that Japan would not have spectators at the Olympics is causing some doubts about how complete the victory is over the pandemic.
During the past week, money has flowed into some of the bigger cap names such as Amazon (AMZN) and Apple (AAPL) as they were viewed as relatively safe havens if growth started to cool. The rotation under the surface has been quite severe, and many small-caps, growth stocks, and even meme names have pulled back.
Thursday morning the big-cap names that have been holding up are reversing hard, and there is also a sharp selloff in Bitcoin and cryptocurrencies again.
This is the sort of correlated selling that tends to occur when market corrections take place. Individual stock-picking is not working and has not worked this week. The only choice is to try to stay out of the way of the selling and be patient while this action plays out.
The good news is that we need these corrective cycles to occur in order to produce better action. The action in big-cap names was unsustainable, but now they are resetting and trapping those that thought it might be easy just to park some funds in the usual names.
One key issue Thursday will be if we start seeing better relative strength in those stocks that have already been correcting as the Nasdaq 100 (QQQ) catches up to the downside.
It looks very ugly in the early going, but I suspect we will see some dip-buying interest in view of the intensity of the selloff.