Orthodoxy prevailed to an extent. We thought there would be a washout of sorts, and some sort of Monday-Tuesday turnaround 'effort'. I say 'effort' since consistently we've spoke to ongoing risk in the upcoming September/October timeframe, and as barring some fantastic surprise, S&P should backtrack.

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That projection isn't terribly exclusive, since everyone knows seasonal worries dominate in the Fall, although not every time and it depends on the backdrop. It's a rough market, in a rough time, and a rough Mother Nature that also isn't likely to bend regardless of what the U.S. Fed does (Pakistan's horrid floods, as well as our own and a possible tropical system coming evidence all that). I even suspect that today's stronger Oil (we did call for a push back toward 100 by the way) relates to expectations related to hurricane / monsoon season, as opposed just to the economic implications of constrained regular demand.

In this case the major Indexes had moved to overbought conditions resulting from an extension of projected rallies from the June lows, and being repelled from the S&P 200-Day moving average. The attempted rebound tested peaks of the ensuing rebound after the first breakdown got nowhere, then of course fairly hawkish commentary (perhaps trying to offset his previous mild remarks) by Chairman Powell at Jackson Hole, and that triggered another breakdown. 

Because most traders are concerned with (notorious?) September prospects ahead, that should limit rebounds now, beyond obvious short-covering and/or intraweek bounces ahead of the upcoming holiday weekend. Exceptions will of course occur, but depend on individual developments and sometimes even such stocks need to trade independently and not be swept along with moves of a 'based' or Index that they're in. That's one of my concerns about ETF's in terms of stocks that are doing better or worse just moving with 'the baskets'. 

However, we find odd correlations of views presently: Senior Warren during the Sunday talk shows commented that the Fed won't really be able to break inflation with their higher interest rate policy. Well I would add: insufficiently. It is an agreement because I have argued that much of the inflation is related to Oil prices, the war, the Iran nuclear deal (fiasco?), China's overall situation as is off-and-on repeatedly (more COVID restraints yet-again), and the Dollar. 

In-sum: 

This behavior is not surprising. Market dynamics remain unfriendly. It also matters that economic revival globally is not yet a reality, while some like the ECB actually contemplate raising rates even as their economies slide. 

The distortion of low rates allowed stocks to move higher previously and that is a backdrop that is not with us, and won't be replicated anytime soon. We're at about 17x earnings for S&P, and Quantitative Tightening is just starting on top of the seasonal factors. Are optimistic alternatives forthcoming? Not yet in absence of the 'war' being settled, as even China sorting things wouldn't even change 'their' recovery prospects near-term. Like Europe, many US company revenues depend not just on supply-chains everyone talks about, but revenue based on sales abroad, and those areas are struggling for lots of big-caps. 

Moving from excess monetary accommodation to a restrictive Fed stance isn't a simple process, and as I've mentioned before, taking it to a truly neutral rate requires the multi-stop process reminiscent of the Paul Volcker era. Strength in the labor market and so on actually encourages a tougher Fed, hence in a sense good news for Americans is bad news as it won't temper the hawks. At the moment you have to envision more hikes just to get to neutral rates, but if they really put a kibosh on the economy, maybe it shifts notably down the line.

Rough markets are common in the Fall, and traders know that. Such risks do invite both selling and shorting, which leads to a complexity on the near-term. The Fed is somewhat too late because wages soared, Oil moved up and food is more expensive due primarily to the drought (not just transport costs), and it all means the Fed can actually worsen the situation if they don't grasp that. 

So yes some earnings won't be as bad as feared, free-cash flow conditions or not, but also I'm speaking of generalities with those big stocks impacted by all the fears of economic downturn. And of course the Fed's staunch position will prove to be late (has been all year) to address the issue, and as I've opined in the past, they may have an awakening when they realize their policies were, or are, necessary, but won't have the total impact they desire on inflation.  

Hence our thinking about downward action (even compelled liquidation) today and even as we took issue with the Fed's 'being behind the curve' last year, it may be that we will have to challenge their staying too restrictive for too long, in the current rate hiking cycle, but we're not at that point yet. 

Lots of crosscurrents, and while not necessarily dire, things look rough (and a lot of people now see that), so maybe we get temporary rebounds with lower S&P levels in sight next month, almost regardless of pre-holiday action.

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