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The Market Just Lost Its Faith

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https://realmoney.thestreet.com/investing/stocks/the-market-just-lost-its-faith-16111378
 
The Market Just Lost Its Faith
 
We continue to see classic bear market action where counter-trend bounces fail and hope that we have seen the lows is crushed.
 
By JAMES "REV SHARK" DEPORRE
 
December 15, 2022 | 04:36 PM EST
 
The initial reaction to the Fed interest rate decision and Chair Jerome Powell's press conference on Wednesday was fairly mild. The market did not like the hawkish tone, and there was some mild selling, but many investors appeared to be skeptical of the view that rates would go even higher for longer.
 
After considering the Fed decision overnight, the market lost its confidence and was hit very hard on Thursday. The indexes had losses ranging from about 2.25% for the Dow Jones to 3.5% for the Nasdaq 100. Breadth was more than four-to-one negative, and the number of stocks hitting new 12-month lows expanded to around 450 names.
 
It did not help the bullish cause that there were some poor retail reports and other economic data. This data helped the market to finally start accepting the fact that the primary problem at this point is that the chances of a recession in 2023 are ramping up very quickly.
 
Many investors were hopeful that a peak reading in the consumer price index would be what caused a bottom in this market, but it isn't going to be that easy. The Fed has raised interest rates at a pace seldom seen in the past, and the economic consequences of that have yet to be felt. Inflation has cooled a bit, but the main reason the market sold off on Thursday is that market players are still trying to figure out how much damage these higher rates are going to do to the economy before the Fed finally relents.
 
For quite a while, the market was obsessed with inflation, but it is now transitioning to concerns about a recession, and there is tremendous uncertainty about the degree to which a recession is already discounted by this market. The consensus view of many analysts is that the market has not yet seen its lows and is unlikely to before a recession even starts.
 
We continue to see classic bear market action where counter-trend bounces fail and hope that we have seen the lows is crushed. It is very likely that we will have at least a little counter-trend bounce action before the end of the year, but at this point, there is almost no one that trusts it. There is growing concern that we will hit new market lows early next year, and that is going to make it difficult for a bounce to gain much traction.
 
The good news is that there are some exceptional opportunities developing, and there will be a long and glorious bull market once again, but we have to stay patient for now and wait for the right conditions to develop.
 
Have a good evening. I'll see you tomorrow.