Will Bulls Ever Capitulate?

The Pavlovian training was a success. There are still many bulls will buy any dip, regardless of what is going on in the world. The war in Ukraine is no longer a sideshow, but the economic impact of it was like a match to a pool of inflationary gasoline. I do expect a massive pullback when this move ends, perhaps as large and damaging as the one in 2008. Instead of an echo high a few years later though, I suspect this dip will be more similar to the pullback commodities experienced during the dotcom bust.

Stocks are hanging on and in the past this was bullish. I do not see it as bullish now, but bearish. My hunch is many investors think this decline is caused by the war and therefore will lift at the end of the war, and think stocks are overreacting. I also sense bulls are off their game. They think everything seen is priced in, but then point to things like buybacks, which are also known, as if they're not priced in. What matters here is the next news break. In a bear market, the news flow keeps turning more negative because it is a swing into negative mood. Bad things start happening with regularity. Firms start going bankrupt. It is a trend change across society. Central bankers have wrecked the minds of a generation of investors though, who think the negatives are all in and a bailout is around the corner. Instead of a bailout, the S&P 500 level at which the Fed steps in keeps going lower as commodities go higher. Stocks haven't priced in the inflation in place before the Russian invasion yet. Even if the war ended tomrrow and Russia and Ukraine were dancing in a field of wildflowers, there is irreparable damage in commodities markets. Some short-term, but possibly "permaent" if relations between the West and Russia/China are permanently damaged. Which means, much more inflation is coming. Consider that Europe is talking about printing trillions to finance energy and defense spending...

It's a highly volatile market fraught with risk because stocks will rip on positive news from Ukraine, yet the low for this move probably is not in. Right now, I still expect it will come in the next month because I see no sign of sanity in Ukraine or the West yet.