Chris Verrone on Market Correction, Sector Rotation, and Potential Tradable Lows

Market Correction and Priced-In Bad News

• 💡 The current market response suggests that a significant amount of bad news has likely been priced in over recent weeks.
• ⚠️ Despite the S&P retesting the 5450-5500 zone, indicators like the VIX, currency, and bond valuations are below their mid-March stress levels.
• 📉 Fewer stocks made new lows last week and this morning, even as the S&P traded back to the 5500 level, indicating a potential shift.
• 🎯 Corrections are seen as opportunities where lows are put in on bad news, not good news.

Sector Leadership and Rotation

• 📊 Financials have held up well during this correction and are expected to lead on the other side, unlike in typical market downturns.
• 📉 Tech did not lead into this corrective phase and has not provided support on the way down, making its return as a leader unlikely.
• ⚠️ If tech does not lead, it could lessen the market's ability to perform well, especially amidst uncertainty about economic slowdowns versus recessions.

Identifying a Tradable Low

• 📈 The market's bottoming process is often marked by bad news, similar to the pullback after the 2009 low when recession fears were high.
• 🎯 The current levels, whether 5505 (last week's low) or potentially 50 S&P points lower, are likely within the range of a tradable low.
• 🗓️ This is especially true as the market moves into historically better seasonal periods in April and May.

Market Indicators and Fed Expectations

• 💬 Investor surveys show more bears than bulls, and consumer confidence numbers reflect pessimism, which can be an interestingly bullish signal.
• 🏦 The message from the two-year yield breaking back down to the 3.80-3.85 zone is more important than any Fed speaker, reflecting shifting market expectations from the Fed.
• ⚠️ If something more sinister were out there, it would likely be visible through credit markets and financials showing weakness, which is not currently evident.