Stocks imploded this morning after opening lower, completely crushing any hopes for another bear market rally. The Dow, S&P, and Nasdaq Composite all plummeted. Yields retreated slightly, too, as a technically-driven equity selloff took over.
As Spotgamma analysts identified yesterday, the SPDRs S&P 500 ETF (NYSE: SPY) was sitting on key support at 380.
Source: Spotgamma
The reason being that a massive “Put Wall” had emerged at 375. A move down to 375 for the SPY could theoretically pull the index-linked ETF into a bearish black hole.
The SPY seemed ready to stay above support at 380 during pre-market trading this morning. Then, investing legend and Appaloosa founder David Tepper sparked a panic selloff.
“I would probably say I’m leaning short on the equity markets right now because the upside/downside doesn’t make sense to me when I have so many Central banks telling me what they are going to do, what they want to do, what they expect to do,” Tepper said in a morning interview on CNBC.
He continued, explaining that tighter financial conditions will soon arrive:
“I believed the Fed before and I believe the Fed now. We are going to have a lot more tightenings. Sometimes they tell you what they are going to do and you have to believe them,” Tepper added.
“Don’t ignore what these [central bankers] are saying. I don’t think they will let a deep recession happen in some sense. It doesn’t necessarily bare well for earnings and the outlook. It’s going to be just difficult for things to go up right now because of these banks and because what they are saying,” he concluded.
Tepper’s commentary hit home with concerned bulls, who watched a red-hot Q3 GDP print come in this morning. Final US GDP in the third quarter was up 3.2% vs. 2.9% expected. Almost all of that gain was driven by gas and weapon exports to Ukraine, but it was still not what bulls wanted to see.
And though it may be uncomfortable to hear, investors should heed Tepper’s warning as he has a very good understanding of how central banks influence markets. In early 2020, Tepper predicted a massive bull run as a result of the pandemic-driven quantitative easing (QE) and rate cuts.
“I love riding a horse that’s running,” he wrote in an email to CNBC.
“We have been long and continue that way.”
Stocks, of course, soared over the next year and a half.
Tepper now joins a laundry list of analysts – many of whom correctly called for a bear market this year – who all predict a rough 2023 for stocks, which could easily see double-digit losses as part of a longer-term bear market continuation.
