EB Daily Market Report - Thursday, April 28, 2022

This will be an abbreviated DMR today as I'm traveling.

Meta Platforms (FB, +14.92%) and PayPal (PYPL, +3.65%) were among the hundreds of companies reporting quarterly results yesterday after the close or this morning before the open. We are seeing mostly positive action today, but that does not mask the overall weakness throughout the month of April. This is a month that historically has been quite strong, but not in 2022. The good news is that we're now onto the 28th of the month and we do know that the S&P 500 is typically strong from now through the first week of May. So NOW is our chance to see a rally. If we can't rally over the next week to ten days, then we could be in for major problems ahead.

Q1 GDP came in weaker than expected and was negative, falling 1.4% vs. the expected rise of 1.1%. A recession constitutes two consecutive quarters of negative GDP. For those who've said NO WAY to a recession, well, we're halfway there. I believe we very well could be in one, but I believe it will be mild. Historically, the stock market bottoms BEFORE the recession ends. So I still fully expect to see a significant market bottom print over the next 1-3 months and a strong rally into year end and into 2023.

While our market bottom could already be in, I'd still lean more towards at least one more leg lower as Wall Street has yet to reposition into aggressive growth stocks. Let me show you the one chart that gives me the biggest headache:

In a perfect world, what we are looking for is a breakdown in the S&P 500 and a higher low in the 7 ratios that I've provided. Instead, we're seeing the opposite. Wall Street continues its flight to safety at an alarming pace, while the S&P 500 hangs onto support. If we see the S&P 500 break down and these ratios all hold prior lows, or even beginning to trend higher, that would be our first TRUE signal of a market bottom or at least the probability of a market bottom approaching.

Until then, I'd suggest we continue to approach this market with an abundance of caution.

Happy trading!

Tom