Stumble in stocks lacks easy explanation for Wall Street pundits

Bloomberg

Up four weeks and six of the last seven, US stocks are doing something they haven’t done since March: fall on consecutive days. For the first time in a long time, Wall Street pundits found themselves trying to
explain a weak market.
Covid-19 cases are surging around the world. Anxiety is swirling that new lockdowns could be afoot. Tension is rising between the US and Russia.
Already stretched technical
indicators are finally giving way.
Those were the theories stuffing inboxes, efforts to explain the 0.7% drop befalling investors in a market priced at the highest forward multiple since 2002. Sometimes markets just fall, but it doesn’t stop people from trying to say why.
“The weaker start to this week is driven a bit by the notion that everybody deserves a rest once in a while, even the market,” said David Donabedian, chief investment officer of CIBC Private Wealth Management. “We’ve had a magnificent run and markets need time to breathe a little bit — even in a bull market,
you can temporarily run out of
buyers for a while.”
Of all the signals in the market, the most tangibly worrisome were selloffs in stocks that had run up most over the past month on the prospects of a broader economic reopening and return of inflation. Travel companies bore the brunt of selling. Booking Holdings Inc. and Norwegian Cruise Line Holdings Ltd each lost more than 4%, while JETS airline exchange-traded fund sinks 4.1%.
But to Chris Grisanti, chief equity strategist at MAI Capital Management, it’s too early to call an end to the reflation trade. “If you look three months out, the US is in a good place. The variants are not going to stop the world from reopening,” he said. “I would use this to buy those reopening stocks you missed the first time.”
The S&P 500 declined as much as 1.1%, its biggest drop in more than a month. The tech-heavy Nasdaq 100, typically seen as a defensive area of the market, dropped 0.7%. The Russell 2000 fell 2% for its worst session in three weeks. The wipeout places the small-cap index’s year-to-date gains in-line with those of the S&P 500.
David Sowerby, portfolio manager at Ancora Advisors said, “Let’s call it one part fundamental and two parts technical. Fundamental would be that you’ve had such high expectations on earnings estimates going higher and higher. Expectations on profits and revenue were getting extraordinarily robust and P/E ratios as one valuation measure were already stretched.”
“From a fundamental perspective, it begins to explain days like yesterday combined with days like today,” he said. “In tandem with that was technicals — the market had four straight weeks of going higher. It’s natural, given the run, that the market would take a little pause and small caps would be the victim. We’d been drinking the stronger earnings Kool-Aid, but at some point you hit some saturation level,” he said.