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The Stock Market Is Poised For A Steep Drop As Growth Rates Slow


  • Earnings growth for the S&P 500 is being pulled forward, and that's depressing future growth rates.
  • Additionally, all signs point to higher interest rates in the months ahead.
  • Coupled together - the index P/E ratio needs to fall dramatically.
  • Looking for a helping hand in the market? Members of Reading The Markets get exclusive ideas and guidance to navigate any climate. Learn More »
Front view of brown bear isolated on black background. Portrait of Kamchatka bear (Ursus arctos beringianus)
Photo by xtrekx/iStock via Getty Images

The edge is getting closer and closer. Despite a really great earnings season, the S&P 500 and the Nasdaq have stopped rising. Tired? Maybe, probably not. It's a message. The market isn't tired - it's telling investors quite loudly that we have seen the best growth rates and that

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This article was written by

Mott Capital Management profile picture

I am Michael Kramer, the founder of Mott Capital Management and creator of Reading The Markets, an SA Marketplace service. I focus on long-only macro themes and trends, look for long-term thematic growth investments, and use options data to find unusual activity.

I use my over 25 years of experience as a buy-side trader, analyst, and portfolio manager, to explain the twists and turns of the stock market and where it may be heading next. Additionally, I use data from top vendors to formulate my analysis, including sell-side analyst estimates and research, newsfeeds, in-depth options data, and gamma levels. 

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (141)

Main Street Origin Investments profile picture
This really hasn’t gone as planned
The bear said, "Come play with my cuddly little cubs!"
First picture on the article: A giant bear

Author's rating at publication: Neutral

Yeah right...
Mott Capital Management profile picture
@Curious_Kid because there was no primary ticker selected.
jasmine4657 profile picture
@Curious_Kid who was right ?
ironically, LEIs are accelerating. Market is bearish. Good contrarian setup.
Salmo trutta profile picture
@Ted Hu

LEIs are decelerating
Looks like the S&P is setting up to test the March lows. It has been range bound and is struggling to get above 4200
@howardm3500 , I think that is a very sensible assessment.
9000 to almost 14,000 - so, just about 50% in one year.
Happy Days for this Bull!
@HereToWin , The world wide money printing is on your side.
0xfc profile picture
I think it is time to trim a bit on the long side or use fresh cash and buy some IG rated preferred stock paying 4 or 5%. Preferably close to par in case rates go up slowly. Maybe a bit of higher yielding preferred too but not garbage. Also there are some decent bond buys as well paying 5% if you look hard. Just because equities are over priced does not mean you can't find some return on cash in a semi safe manner if you don't want to buy common right now.
@0xfc , Yes, that is true but the problem is that the yield can always go much higher causing losses to the holder.
Dangerous to market time. The opportunity costs can be obscene.
@Moomoo22u2 , So can losses in a bear market.
@kimbillro , set your stop losses above your cost if you worry about that. Meantime keep raking in your fat dividends.
@Fero. , Yes indeed!
thumbsoup profile picture
Non-Seasonally Adjusted data for April jobs report show +1 million jobs. However, it has also been pointed out that in the month of April, a +1 million increase is fairly common.

NSA discussed as Possible Explanation #4 for the April jobs report.

"this does not appear unusual for April, however. There were similar 1 million + gains in NSA in previous years, with similar 200+ gains in SA"

"There is some discussion that the seasonal adjustment is obscuring job gains, but +1,089,000 jobs added non-seasonally adjusted is still disappointing—we expected larger gains between the normal seasonal effects + recovering economy."
Agree ‘at some point in the future.’ In the next two weeks though, I see stocks going higher.
@rgranlund , They are being floated up on a sea of new money.
Steep you say?
Lance Brofman profile picture
Not seasonally adjusted payrolls were up 1.089 million for month
Mar 143309 Apr 144398 1089

There is uncertainty as to how much inflation will occur and whether it will be perceived as transitory or permanent. Even assuming the worst case of significant inflation that appears to be permanent, there is then the question of what will then be the impact on interest rates. Forty years ago, that would have been a silly question. Everyone then knew that higher inflation was associated with higher interest rates.

Today, it is not a certainty that higher inflation will cause higher interest rates. For advanced economies with stable political systems and rule-of-law governance, higher inflation might not cause higher interest rates. If inflation increases, but interest rates do not, then real interest rates become more negative. Forty years ago, most believed that persistent negative real interest rates were not possible. However, then there was also a much stronger view that persistent negative nominal interest rates were not possible. The trillions in securities today trading with negative nominal interest rates, suggests that persistent negative real interest rates are possible...." seekingalpha.com/...
David Hendry profile picture
@Lance Brofman I am betting the fed will be slow to bump up interest rates as inflationary pressures rise. Keeping rates as low as possible will spread the pain to those who can least afford it. The fed holding rates as prices rise would be a tax the poor strategy . The .gov debt would be quite difficult if not impossible to service at higher rates and given the choice of sticking it to the citizens or the .gov, Powell's decision will be easy & self serving..
thumbsoup profile picture
@Lance Brofman Thanks for the mention of the Non-Seasonally Adjusted employment numbers.
@Lance Brofman We do not have rule of law government,. We have mob rule and cancel culture-where even a former President can't speak freely.
Same old broken record by Mott. He has missed the entire ride UP since last April.

Doesn’t even mention tax hikes as a headwind but then that will tamp down inflation, interest rates and the economy
If I believed this sentiment every time an article such as this prophesied the impending doom of the markets, I wouldn't currently be playing with house money.

It would seem that the "traditional" institutional-type investor is a bit out of touch. If you need proof...just listen to Charlie Munger calling bitcoin "disgusting"...even as JPM and GS are creating divisions dedicated to trading it and major retailers accept it as payment now.

The market has no consideration for anyone's opinion.
@Jarhead-Fed , The market responds to incoming money flows from the world's central banks that have not slowed down their money creation.
Gosh how I long for some original content to make me think. Not here. If any one can point out one thought that this article contains that is original, then please post it. I will thank you!!

"The sun will rise tomorrow, as I predict."
@Michael123a , The sun does keep soybeans, rice, and cotton growing.
Salmo trutta profile picture
As I said: Short-term monetary flows (proxy for real output), peaks in May (underweights Vt).

Stocks typically follow short-term money flows. The U.S. $ follows long-term money flows.
@Salmo trutta We should be getting close to your flip date?
@kbuilder , Which way will it flip?
@kimbillro I thought the flip already happened, (10th & 11th) but taking yesterday's performance and today's futures the flip is being challenged. As you have pointed out, there is so much money out there it has to go somewhere.
Rational Bull profile picture
One day the market will pull back. In the mean time we have inflation running at 7% annualized for the first 3 months of 2021. The government needs inflation and low interest rates to have any chance of paying its massive debts.

If a powerful person ever talks about raising rates (such as Janet Yellen a few days ago), the comments are almost immediately walked back.

The stock market may be overvalued, but what are you going to own instead? Fiat? Bonds paying peanuts?

I think you need to own stocks, property, or commodities at this point because there is no alternative. Huge inflation will paper over the valuation issues.
@Rational Bull , Yes, inflation is the threat.
DividendInvestorInMinnesota profile picture
Eventually this article will be spot on. Tomorrow probably not, 6 months a year down the road? Maybe, but eventually it'll be right..
@DividendInvestorInMinnesota Eventually, but a broken clock is also right two times a day. He has not hit this in the past 3 months or longer.
What is he still doing here?
@DividendInvestorInMinnesota the decline from SP 10,000 to his target of 3,200 will be brutal.
@Peter J McGee , Let's see what happens.
This article outlines real concern on the part of a VERY overvalued market, and in those conditions, even a minor disruption could start an exit from the market. Insider selling is quite high right now in many companies across the spectrum, margin debt is about at an all time high, and today's lousy jobs report is being called an anomaly, but is it really? The market need not drop immediately, but the political landscape and the overvalued nature of this market, make the chances much more possible by the fall of 2021, it will just take an event that was unforeseen, or a huge tax increase to push it over the edge.
@Fast_Times , Margin debt is at a record $825 billion +.
Every article has the same idea: this bubble will burst.
For sure one day it will burst but, please, stop writing the same thing almost daily.
One day, one of them will be right. And on that day, that one will be praised as a genius. They all hope to win that lottery.
@webchow , That day will come!
Dude, you are polluting the thread. How many comments in the last 24 hrs?
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