U.S. Stock Market - Record Highs, But Then Down On The Week

The closely-watched Dow Jones Industrial Average, the S&P 500 Index, and the New York Composite Index all printed record highs last week, but each of them posted a loss on the week. Bulls and Bears were both equally frustrated last week.

Is it too early to call someone "Legendary" when he's earned 28.5% compounded annually over the last 20 years for his investors (net of fees!)? In addition to a stellar return for his investors, David Tepper, founder and chief executive at Appaloosa Management (a hedge fund) earned $3.5 billion for himself last year, which makes him the top dog in the hedge fund industry for 2013. I think it's safe to use the word "Legendary" when describing David Tepper in terms of his investment management skills. However, I don't think we can use the same word to describe his oratory skills.

At the SALT hedge fund conference in Las Vegas last week, Mr. Tepper used the following words to describe his recommended position in the U.S. Stock Market here:

“Don’t be too fricking long right now!”. “The market is kind of dangerous right now,” said Tepper. "I’m nervous.” 

Tepper's less-than-positive comments on the U.S. Stock Market probably contributed to last Thursday's slide of about 1% in most major averages. However, buyers were back on Friday and most major stock indexes recovered about half their losses sustained the prior day.

So where does that leave us?

The S&P 500 Index, the New York Composite Index, the Dow Jones Industrial Average, and the Dow Jones Transportation Average all remain close to record highs, while the Nasdaq Composite is down about 6% from its 2014 high, and the Russell 2000 is down about 9% from its record high. So-called momentum stocks, the big winners from last year, are down about 20% to 60% (or more) from their all-time highs, depending upon the name.

Bottom line: Large-cap stocks are showing remarkable resilience in the face of significant recent damage to small-cap stocks and momentum shares. However, I remain convinced that the entire equity market will move in sync on the downside very soon. While I am unsure what the negative catalyst will ultimately be, I strongly suspect that most investors will soon come to the realization the Federal Reserve is now in "tightening" mode. I feel that most market participants are underestimating Chair Yellen's resolve to end Quantitative Easing (at least for now). The vote on the latest $10 billion taper was 12 - 0 in favor. And the vote on the next $10 billion taper will almost certainly be unanimous in favor as well. Corporate earnings won't be strong enough to offset a Federal Reserve that is sending strong signals that "the punchbowl won't be refilled any time soon" and maybe the party is over!

Russell 2000 Index Weekly Bar Chart with 30-Week Moving Average Line

S&P 500 Index Weekly Bar Chart with 30-Week Moving Average Line