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For the Markets, Deja Vu All Over Again

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The market continues to massage high valuations out of its indexes, with another down day, pretty much from pillar to post: the Dow closed down 267 points or -0.78%, the S&P 500 dropped 0.85% and the Nasdaq came down 0.56%. The Dow fell nearly 100 points in the final minutes of the session. The Russell 2000, which was holding onto a positive session until the final minutes, came down 0.73%.

So again, as we’ve seen in the past couple weeks, whatever gets pumped up into the markets gets deflated again over time. This is distinctly different than the last valuation-correcting system in place, which was growth names playing catch with cyclicals. If the capital from stock selling is going anywhere, it’s probably cash and commodities. Even Bitcoin is down 20% in the past week.

Though we see a little choppiness in the index charts, we’ve achieved something of a plateau. It’s still a very high one, as we’re at Alpine heights near our all-time highs in the Dow and S&P earlier this month, the Nasdaq back in February. Even the small-cap Russell was hitting record closing highs in mid-March. What we’re not seeing — and not expecting at all — is any kind of turbulent downward surge like we saw in March of last year. Economic metrics are far too good for that.

That said, even in what we recognize as an uncommonly robust economy coming out of the year-long-plus pandemic, we’re also aware of plenty of areas we might fumble the ball. Covid vaccinations in the U.S. are very good — 57% for adults — but not great (70% would bring us close to herd immunity). The vaccines, fortunately, do tend to have positive effects on new variants, though in regions like India, who knows what new mutations may crop up.

We are still not seeing like-industry players getting on the same page, whether its certain industries unable to attract workers to their hefty amount of open positions, home builders keeping their sites dormant until lumber prices come down a bit, or a new infrastructure bill demonstrating the level of partisan dysfunction on Capitol Hill. Eventually there will be an equilibrium with all these things, and likely carrying real, calculable inflation along with them. So markets aren’t in a hurry to stick their necks out too far.

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