Where Is Risk Appetite?
Investors,
As of Thursday, March 13th, the S&P 500 officially fell -10% on a closing basis.
Given that the S&P 500 had its highest daily close ever on February 19th, this current correction in the span of 16 trading days is one of the fastest declines in history.
Historically, 10% corrections since 1950 occur in 38-40 days, on average.
In the 40 official corrections for the S&P 500 since 1950, there are only a handful of 10% declines that have occurred in a similar speed (under 20 days):
October 1957 Post-Sputnik Sell-Off:
Occurred in ~14 days.
After Sputnik’s launch, the S&P 500 faced pressure from Cold War anxiety.
October 1987 Crash (Black Monday):
Occurred in ~3 days.
This was one of the most unique declines in market history, blamed on the infantile era of algorithmic & computerized trading.
October 2008 Financial Crisis (Post-Lehman Collapse):
Occurred in ~10 days.
Amidst Lehman’s fallout, the market became wary of the financial system and the systemic risks that were beginning to show severe cracks.
August 2011 Debt Ceiling Crisis/Flash Crash Echo:
Occurred in ~9 days.
Still dealing with the PTSD from the Financial Crisis, investors were scared about U.S. debt ceiling drama and S&P downgrade, in addition to mounting risks overseas with respect to European debt.
December 2018 Fed Tightening Scare:
Occurred in ~18 days.
After several years of persistent +0.25% rate hikes from the Federal Reserve, the market became increasingly concerned about additional Fed hawkishness, particularly in light of ongoing trade fears.
February-March 2020 COVID-19 Crash:
Occurred in ~16 days.
Amidst a global health scare and the ensuing government lockdowns, pandemic fears gripped the market.
In each particular case, there was a clear risk that threatened U.S. and/or global markets enough to instill a heightened degree of fear into investors.
What’s the reason today?
The easy answer is Trump, but this makes me scratch my head given that he literally ran his campaign on tariffs and a heavy scrutiny on government spending.
Because the market is a forward-looking pricing mechanism, these risks were known!
So why would the market fall on these events when the market was (seemingly) celebrating Trump’s election in November & December 2024?
This is why the caution & concern that I highlighted on February 22nd never cited Trump, monetary policy, the labor market, or any other macro talking point.
Instead, I cited intermarket analysis and focused on price action.
As a reminder, you can watch that entire video analysis here:
So instead of trying to assign some sort of “fundamental” justification for this selloff, I’ll continue to rely on technicals and key intermarket relationships to navigate this market.
In this report, I’ll build on those key concepts and highlight the key risk appetite dynamics that I’m paying attention to right now, as I think they should be at the top of your list too.
Let’s begin…