It's a Matter of When?

• Stocks in the US closed lower on Wednesday, as investors weighed the latest batch of earnings and hawkish tones from Federal Reserve officials.

• The S&P 500 dropped 0.5% and the Nasdaq fell sharply by 1.1%, both marking the fourth straight session of losses, hitting February levels low.

• Fed Chairman Powell noted that the central bank is in no rush to cut interest rates in response to recent signs of high inflation, a sharp change of rhetoric from previous remarks that hot inflation readings in January and February didn’t alter the disinflation trend.

• Semiconductor stocks led the losses, as ASML sank 7% on poor results, while ARM and Nvidia dropped 12% and 3.8%, respectively.

• Also, Abbott dropped 3% as a lower Q2 guidance offset strong sales.

The correction in stocks continues;

• S&P futures are now down 5.3% from the April 1 record high.

• Nasdaq futures are down 5.8%.

• Dow is down 6.2%.

• Russell is down 9.5% (20% lower than the record highs of November 2021).

Interestingly, it's not the broad indiscriminate selling of stocks you might find in an economic shock, or the unwinding of a grossly overvalued market. Over 40% of the S&P 500 stocks were up on the day (4 out of 10 sectors).

This continues to look like a technical correction in a bull market. Not only do we have the catalyst of a new industrial revolution underway, but the economy continues to be flush with cash - we've looked at this chart of money supply …

The money supply remains trillions of dollars above trend. And Biden's proposed 2025 budget would require printing another $1.8 trillion. If we extrapolate out the trend (crudely) in money market funds, the balance there is around $1 trillion above trend.

So, the correction is a buy in stocks. It's a matter of when.

As we discussed yesterday, given the adjustment in rate expectations, and the headline risk with Israel/Iran, it's fair to expect a deeper correction, still. With that, based on historical performance of the S&P 500 we should expect intra-year corrections, on average, of better than 10%.