Date: February 9, 2022

People Partying Again – A Look Into My Notebook

It sure seems like the hangover from the stock market decline that bottomed on January 24th has passed. People feel better and I am going to go out on a limb and say that we will see this reflected in next week’s sentiment surveys which are being taken this week. February 2nd is the highest level since the January market low, but investors certainly are happier today than then. In fact, we are now seeing the S&P 400 and Russell 2000 lead which favors a more risk on posture. And as I mentioned a few times, what falls the hardest usually bounces the most.

As some of you know I keep a daily notebook of things I hear, watch and read. My activity ebbs and flows over time. If you recall, I commented last September how all these people who were absolutely convinced the bull market was over and a crash was about to ensue. Stocks quickly bottomed. In November, the chorus grew louder. Stocks soared to new highs into January and many gave up. Between January 21st and the 24th, I heard, watched and saw some of the most negative conversations since 2020. Stocks bottomed on the 24th. See where I am going?

Some of you know how I often comment when certain high profile commentators make bold forecasts. They are usually wrong and fast. One guy has the uncanny ability to dead wrong almost to the hour. On June 18th, he quoted someone else’s research that stock “never” rally over the coming two weeks. I took note. Stocks bottomed that hour and rallied for, well, two weeks. He reversed course shortly thereafter and stocks promptly fell for five days. You can’t make this stuff up! In the oil market, he said “THE top” was in on July 19th at $67. I think you  know what has happened to crude oil since.

My notebook is more anecdotal than scientific, but it does help.

Anyway, and I meant for this to be a quick update, but I have gone on and on. As I have said numerous times, January 24th looked like the internal or momentum low, the day where the majority of stocks saw the most damage. As you also know, I called for a single digit decline in Q1. While I am certainly not calling for fresh, all-time highs yet, the bulls are making some progress, albeit on uninspiring volume. Junk bonds need to find their footing sooner than later. That’s probably the single most important issue now.

On Thursday, the government releases the Consumer Price Index (inflation) and a spike in interest rates might give us the opportunity for that Q1 bond buy I wrote about in my 2022 Fearless Forecast. While the masses will all run for cover and decry much higher rates ahead, I will gladly take the other side of that trade. Inflation is in the process of peaking, even though it will remain in the 7% range right now.


Paul Schatz, President, Heritage Capital