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Is this a correction or something much larger?

January 25, 2022

I still believe that this is a market correction and we have met our 10% downside. We’ve certainly got down to some longer-term support and the lows of October. This is how bottoms feel, very scary. The Dow Jones industrial average was down 1,115 points at the low and finished up 99 points yesterday. I cannot tell you for sure that we’ve hit a near-term low, however, this is what they feel like. The fear index, the VIX, climbed dramatically yesterday.

The VIX is the ticker symbol for the Chicago Board Options Exchange's CBOE Volatility Index, The VIX is based on S&P 500 index options and a measure of the stock markets volatility. Also known as the fear index. Usually, when that gets very high it can indicate an oversold level. Were up there!

The market is contending with the Federal Reserve meeting this week and anxious about the commentary coming out of that meeting. They meet today and tomorrow. It’s hard for me to imagine that the Federal Reserve will be too heavy-handed given the slowing economy and upside-down markets. It’s not the Fed’s job to backstop the stock market, however, there is a negative wealth effect to the market going down. The Federal Reserve will be well aware of that. Also, they’re looking at the same economic numbers everybody else is.

I listened to a market participant yesterday talk about the Federal Reserve overlooking the markets and focusing squarely on inflation. However, only some of this inflation can the Federal Reserve attack. Some of the commodity inflation, especially energy, is structural, and no matter how high the Fed raises rates it probably won’t lower energy costs. It will only reduce people’s ability to fill their tanks.

I believe that the recent spike in omicron has affected the economy. The big question is has it pulled back some of the inflationary pressure. It may have been from the demand side. However, we still have to be very concerned about supply chain issues.

So, what do I see for the markets this week? I see more volatility this week as we retest yesterday’s lows. We must hold yesterday’s lows. If we are at a bottom, the market will backfill as part of a bottoming process. However, it will allow market participants to reacquire assets at lower prices. The stock market is one of the only markets where people resist buying when it’s on sale.

The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.