Major Stock Bear Awakening - Adam Hamilton

... just this Wednesday, the blame-China excuse for the horrendous early-year US losses imploded. On a day with the best economic news out of China in some time, a big upside surprise in exports, the US stock markets opened higher. But they soon started to sell off on no news whatsoever, collapsing to a huge 2.5% loss which made for the worst trading day of 2016... China is a peripheral issue to the dire implications of the new Fed tightening cycle on stock markets levitated for years by epic record Fed easing. And the selling isn't over even on a near-term basis...

The near-term selling in the stock markets is very unlikely to end in the magnitude of plunge we've seen so far in 2016 without a VIX read up above 40. As of Wednesday, the VIX's highest close of the year was merely 26.4 last Friday.

... We remain mired deep in the secular bear which started in early 2000, and tend to run for 17 years. While the SPX's nominal peak near 2125 last May was a lot higher than March 2000's near 1525, if you adjust the latter using CPI inflation it works out to about 2100 as well in early-2015 dollars. So ever since 2000, the stock markets really have ground sideways on balance.

Secular bears don't end at fair value of 14x earnings, but persist until stocks are trading at half that level or 7x before they finally yield to the next secular bull. In order to push valuations down that far based on today's corporate earnings, the SPX would have to see an astounding 74% bear market that would crush it under 550!