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It’s a New Ball Game in Bear Market

For the past decade or so, the market has been relatively certain. In a bull market, concepts of “buy the dip” and a stock bump after impressive company figures has been reliable for traders to bank on. Today, traders and investors are living in an entirely different landscape, and one that looks strikingly like a bear market. In this season’s Wall Street, any hint of doubt from a company could send shares tumbling, while an overall positive report offers a modest and short lived bump.

Exemplifying this new trend is Costco’s most recent earnings report and price plunge. After Costco reported earnings last week, the company’s share price plunged an outrageous 10 percent. While this isn’t unheard of on a disappointing earnings report, Costco’s was far from that. The company reported sales comps of 7.5 percent for Q1 2019, and a 19 percent jump in its EPS, barely missing street expectations. A slight selloff is to be expected with any earnings miss, but for a strong company like Costco, a recovery following the dip would have been expected in the days following. Costco hasn’t seen any recovery.

“It’s a consumer staples stock with low tariff risk, so it’s defensive into a slowing consumer environment in 2019,” wrote JP Morgan’s Christopher Horvers. “And it is difficult to find mid-single-digit-plus longer term top line growth with very low Amazon.com (AMZN)/brand risk.”

Looking at other companies who’ve reported in recent weeks, similar trends of little to no recovery and hardly any upside on overwhelmingly positive news have become apparent as well. With General Mills for example, a resoundingly positive report offered a 5 percent dip.

The key culprit is likely overall market uncertainty giving way to bears winning out over bulls.

Watching the markets as a whole in indices like the S&P500 or the DJIA throughout a trading cycle, we’re seeing any positive traction dissolve in the span of a few hours. The key factor in the lack of traction for upward momentum is capital protection. If stocks are up at open, traders are unwilling to risk those gains and walk, adding on to the sell-side momentum.

What we’re seeing is known as “bear market action,” where there is no visible upside over days and weeks, and investors are protecting any small gains they can.

The good news is that it is unlikely to be long-lasting. According to many economists, 2019 will likely be a year of sustained global growth, cheap oil, and trade war resolution to drive stocks back into a bull market.

 “The days of easy monetary policy are over, but governments are looking to take over the reins to sustain growth as downside risks multiply,” said Dana Peterson, who is an economist with Citigroup.

Of course, where there are optimists there are pessimists. Peter Schiff, president and chief global strategist at Euro Pacific Capital said that “we’re in a house of cards that the Fed Built.”

“Markets are starting to crack as this debt is getting more expensive to service,” said Schiff. “We built this gigantic bubble on this unprecedented amount of cheap money and quantitative easing, and now the hangover will be much worse.”