Earnings Hype Dies Down

There was so much anticipation of blockbuster earnings this quarter, which is part of the reason there has been so much disappointment.  It is looking like peak earnings this year, and the market is not happy about it.  I heard so much talk about how great earnings would be this quarter, and how that would help stocks.  Well, stocks are selling off on the news.  It doesn't help that 10 year bond yields go up every day and have now pierced 3%. 

It is panic week in the bond market, and that is spilling over to the stock market.  There is so much leverage in the corporate world now, that even small moves higher in bond yields have a heavy weight on the market.  It is why you saw the liquidity absolutely dry up yesterday on a plunge once SPX 2660 support was taken out.  A 40 point plunge in a couple of hours.  Once the panic in the bond market fades away, stocks should find a stronger bid. 

Bonds are still in liquidation mode, but its definitely not going to stay in liquidation mode for long.  It is a nasty market out there, wholesale liquidations are happening and the Street is still too long stocks.  It will take months for the market to digest the monetary tightening and by the time that happens, the economy will probably be on the other side of the hill, looking down towards a sharp slowdown, similar to 2016.  Don't know if there will be a recession, as so much fiscal stimulus has been pumped in for the next several years, but I do expect an economic slowdown by the fall of this year, and stocks are not ready for that scenario. 

In the short term, stocks can bounce after the earnings season passes by, but obviously this market doesn't have the upside power like it did in past years.  We may get back towards last week's highs if nothing crazy happens, but I doubt we can get back to 2800.