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StreetTalk<>Weekend Reading: Did The Market Just Get “Woke?”
Written by Lance Roberts | Feb, 2, 2018

Since the beginning of this year, we have been warning of the potential for a correction. Of course, such warnings seemed pointless as the nearly “parabolic” rise in the markets seemed unstoppable. The chart below shows the current acceleration through the end of January.



But all of a sudden, something seems to have changed as the market stumbled this past week and has been unable to regain its footing.



So, what “woke” the markets?

Was it the sudden realization that Central Banks globally are reducing Q.E. programs? Or, that economic growth may be weaker than expected given recent numbers? Or, something else?

Whatever, the excuse turns out to be, the real culprit is seen in the chart below.



As I have been discussing “ad nauseam” over the last couple of years, interest rates are now stuck in a trading range that will likely remain between 0-1% during the next recessionary drag with a 3% ceiling as seen in 2014. Importantly, rates are at levels of overbought conditions only seen 3-times previously going back to 1980.

I am going to discuss this in more detail in this weekend’s forthcoming “Real Investment Report.” However, the point here is that since interest rates drive everything from borrowing, to spending, to capital investment – higher rates negatively impact economic growth. Since stocks are ultimately a reflection of the economy, it is hard to suggest that stocks will continue to rise in the face of higher rates.

Furthermore, higher rates are rapidly crushing the one argument used by bullish investors over the last eight years which has been “low rates justify higher valuations.” As I have repeatedly stated in the past, it is one argument that can literally change overnight.

Is this the beginning of the next major market correction?

Probably not.

There is simply too much exuberance currently in the market. It will take several failed rally attempts to begin to erode that base of bullishness.

But therein lies exactly what you want to look for. Rallies that fail at previous resistance levels, rising volatility and declining rates of participation.

As with every previous major market correction in history, investors were always given multiple warnings BEFORE the crash actually occurred.

Of course, few investors heeded those warnings because they had been lulled into the belief “this time is different.”

It wasn’t then. It won’t be next time either.

Here is your weekend reading list.

Economy & Fed

Trumps Trade & Investment Goals Don’t Add Up by Caroline Baum via MarketWatch
What Really Worries Wall Street Analysts by Simon Constable via US News
Will The Fed Start Q.T.? by Kevin Muir via The Macro Tourist
Ugly Politics & The U.S. Stock Market by Macromon via Global Macro Monitor
Countering The Bond Bear Narrative by Edward Harrison via Credit Writedowns
Why Don’t Republicans Fret About The Debt Anymore? by Annie Lowrey via The Atlantic
$AMZN Should Not Be In Charge Of Fixing Our Healthcare by Eric Levitz via New York Magazine
Trump Dreams Of A 1950’s Era Economy by Noah Smith via Bloomberg

Markets

Edwards: It Feels Similar To 1987 by Tyler Durden via ZeroHedge
What You Need To Do Now BEFORE The Tumble by Michael Sincere via MarketWatch
These 4-Indicators Say Buy The Dip by Bryce Coward via Knowledge Leaders
Momentum Isn’t Magic by Sanjurjo & Miller via The Conversation
Why Won’t The Market Correct? Greed! by Howard Gold via MarketWatch
Are You Ready For The Next Market Melt-DOWN by Michael Kahn via Barron’s
The 401k Brag by Sally French via MarketWatch
The Reasons Why I’m Not Bailing On Bonds by Michael Cannivet via RCM
Is U.S. Economy Hostage To The Stock Market by Robert Samuelson via RCM
Bull Market Piles Up Some Urgent Questions by Nir Kaissar via Bloomberg Gadfly
Key U.S. Stock Levels To Watch For The Week Ended 02/02/18 by Jesse Colombo via RIA
The Next Maestro by Michael Lebowitz via RIA

You Should Never Time The Market?

Cryptocurrency Mania

Bitcoin Crashes To Lowest Level Since Thanksgiving by Tyler Durden via ZeroHedge
Bitcoin Versus The IRS by Shawn Langlois via MarketWatch
Bitcoin And Taxes by Jeff Roberts via Fortune
Stocks & The Bitcoin Crash by Bryce Coward via Knowledge Leaders
Bitcoin: “Beanie Babies” Of The Moment by Vitaliy Katsenelson

Research / Interesting Reads

Why The Next Downturn Won’t Be Like 2008 by Wolf Richter via Wolf Street
Alan Greenspan On The Twin Bubbles by Macromon via Global Macro Monitor
The Possibilities Are Frightening by Kevin Muir via The Macro Tourist
5-Mega Trends & How To Invest In Them by Jeff Reeves via MarketWatch
Biggest Mistake Americans Make Saving For Retirement by Emmie Martin via CNBC
Will Anyone Care About The GOP Tax Cut? by Bess Levin via Vanity Fair
Your Expected Tax Refund & The Psychology Of A Windfall by Elizabeth Harris via Forbes
It’s Getting Lowly At The Top by Dana Lyons via The Lyons Share
Amazon Adds A McDonalds In Market Cap In Month by Jesse Felder via The Felder Report

“Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little.” ? Fred Schwed Jr.

USE LINK to access READS:
https://realinvestmentadvice.com/weekend-reading-did-the-market-just-get-woke/