The stock market was only open four days last week but it managed to do selling for eight. There was non-stop selling everywhere. All brief intraday rallies were faded towards the end of the day. Anything that had held relatively well before last week, was hit with a hammer – semis, industrial metals, financials. Oil and gas stocks are the last standing Mohicans but even they are starting to crack. Anything that was already weak, was completely destroyed – biotech, software, Internet retail. I will give you just one example to get an idea of the ongoing selloff – Shopify is down 50% in the past two months. This is not obscure small-cap biotech. It’s a high-growth mega-cap tech stock.

The new earnings season has begun. We judge market sentiment by the reactions to earnings. I haven’t seen so scared and pessimistic market reactions in a long time. Semis were clobbered despite record earnings from TSM and Micron. Financials were hit hard despite rising interest rates and improving margins. NFLX was annihilated because it suggested that future growth might be a bigger challenge. Don’t they always do that anyway? So what gives? One of the bull market’s major characteristics is multiples expansion where due to FOMO and complacency, people are willing to pay higher and higher multiples for most companies’ earnings and sales. The markets are currently in a multiples compression mode. Everything is getting repriced and receiving a lower multiple. The challenge and also the magic of markets is that they tend to overshoot – first to the upside and then to the downside. They don’t just stop in the middle and settle for “fair” prices.

There’s an FOMC meeting on Tuesday and Wednesday. In previous months, we would see a selloff ahead of the FOMC meeting only to experience a big short-term rally afterward if it becomes clear that Fed’s actions don’t align with their hawkish words. Something similar might happen next week. All major indexes are down significantly multiple days in a row. A big snap-back bounce, even if for a day, is very likely. Some of the most fierce rallies happen within downtrends – recognize them as such, take advantage of them but don’t overstay your welcome. The trend remains lower. Stay nimble or stay on the sidelines.