Extreme Fear – Fed To Hike Rates Until Something Breaks

Extreme Fear Continues

The S&P 500 fell 4 basis points. Dow rallied 0.26% because Proctor and Gamble beat earnings estimates. This caused its stock to increase by 8.8%.

The Nasdaq fell 0.48% and the Russell 2000 fell 1.2%. Advanced Micro Devices was the biggest loser in the S&P 500 as it fell 11.1%. The best sectors were consumer staples and utilities which increased by 2.31% and 1.68%.

It’s tough to say if Proctor and Gamble stock rose because of great earnings or because defensive names are popular now.

Their EPS beat estimates for $1.09, coming in at $1.12. Revenues of $16.69 billion beat estimates by 0.8%.

Those seem like normal results for this firm, yet its stock rallied sharply. I think traders are piling into these consumer staples names any chance they can. The worst sectors were healthcare and energy which fell 0.95% and 0.89%.

It’s interesting that even though the Nasdaq fell, the tech sector was up 1 basis point.

Possibly, the negative housing data is scaring Wall Street. It’s a new catalyst to consider besides earnings season and the Fed.

Furthermore, small caps must deal with rising rates as over half of Russell 2000 firms’ debt has floating rates.

New negative catalysts are emerging constantly which makes me more pessimistic on intermediate-term returns. I’m still bullish on the short term though. The CNN fear and greed index is at 14 out of 100 which means extreme fear.

Extreme Fear – Fearless Consumer

The concept of extreme fear in the stock market needs to be explained. There’s obviously not capitulation level fear like at the end of a bear market.

This is simply very short-term fear which usually accompanies a correction. As I mentioned, even if this isn’t a correction and it is a bear market, stocks should rally temporarily. They are oversold.

The extreme short-term fear isn’t consistent with consumer confidence seen in the chart below.

That’s good news for GDP growth and the stock market. It means consumer spending should be strong this holiday season.