Fear and Anxiety on Wall Street

Stocks struggled most of the day on Wednesday, but did bounce briefly on the release of the minutes of the last Fed meeting. There wasn’t anything particularly surprising in the minutes, but the brief spike on the news illustrates how there is still a high level of fear of missing out in the market. There is still quite a bit of anxiety that this market may continue to run away to the upside.

After the intraday reversal on Tuesday slowed the frothy momentum that had been building, stocks were set for some profit taking, but it was fairly mild. Breadth was quite poor, with around 1,700 gainers to 6,550 decliners, but it was the small caps that suffered the most, with the Russell 2000 fund (IWM) losing 1.6%.

The bullish narrative recently has been that investors were both too negative and poorly positioned. Those are powerful forces, but they have dissipated to some extent during this very strong move.

We are finally seeing some much-needed consolidation and profit-taking, but the big issue is how deep it will go before support develops. It is far too early to even try to guess, but we are now moving into a very weak time seasonally, and with the earnings season concluded, the main market drivers will be economic data that are very likely to be mixed. Wednesday’s retail sales numbers were slightly better than expected, but that may have been due primarily to higher prices driven by inflation.

I’ve been working on repositioning, and now that I’m holding a very high level of cash, I’ll be looking for some new opportunities as the market pulls back.

Have a good evening. I’ll see you tomorrow.

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