by Wolf Richter, Wolf Street:
Oh lordy, in a market where nothing can go wrong, Dow falls below January 2018 level.
It was a beautiful historic rally: The S&P 500 soared 25% from the low of December 24 through May 3, topping out at 2,945. The setup had been perfect, as I mentioned on December 22, Nothing Goes to Hell in a Straight Line, Not Even Stocks.
But going to heaven in a straight line is hard too. When valuations get this inflated, and this concentrated, and life is this perfect where nothing can go wrong, with endless wealth just another day away, it doesn’t take much to trigger some sell orders.
The trigger came Sunday afternoon with the now infamous tweets by Trump about saying “No” to China, an indication that the trade talks – whose string of endless successes had been hyped by the White House to supply fuel for the stock market rally — had inadvertently fallen apart, or had never gone anywhere to begin with, or whatever.
But any trigger could have done that job, after this rally.
The Dow Jones Industrial Average, which never quite made it back to its closing record of 26,828 set on October 3, fell 473 points today, or 1.8%, to 25,965 – revisiting that infamous 26,000 once again, which the Dow had broken through on the way up for the first time in January 2018.
This is the level that, on the way up, invariably triggered a presidential tweet, but not on the way down. So now the Dow is below where it had been in January 2018, and it’s 3.2% below its October peak.
The S&P 500 fell 1.65 % today to 2,884 – just about flat with where it had been on January 26 last year (2,873), and down 2.1% from its closing high on April 30 (2,946), and down 1.6% from its old closing high (2,930) of September last year. And this after is had risen 25% in a little over four months.
The NASDAQ composite fell nearly 2% today to 7,965, breaking once again below 8,000. It had risen nearly 32% from December 24 through May 3, but has now dropped 2.8% from the peak, and even after this steamy rally, it is below where it had been on August 27 last year.
The Russel 2000 fell 2.0% today to 1,582. Like the Dow, it never made it back to its peak in August last year of 1,740, and now sits 9% below the peak – despite a 25% rally since December 24.
And all this included a big bounce over the last 20 minutes of trading.
So this is no big deal. The big deal is that it hadn’t happened earlier, more often, and with a little more kaboom.
That bounce-back rally was built on nothing but vapors: The economy is growing at a rate of 3% in the entire year maybe, if we’re lucky, while earnings of S&P 500 companies were about flat in Q1, and so stocks should soar 25% in just a few months? And then should continue soaring? I mean, out of whack is out of whack.
Just how silly this market has gotten is exemplified by Beyond Meat, a 10-year old company whose fake burgers – combining the worst of terrible burgers and unrecognizable industrially processed plant substances – have been sold for years, and whose shares following the IPO have skyrocketed to give the company a market capitalization of $4.6 billion though it has persistently lost money on its fake burgers and had sales in 2018 of only $56 million.
It’s apparently easier to sell stocks in this environment than it is to sell fake burgers. So the company is now valued at 83 times revenues. This is nuts.