Back in November, JPM prophetically warned that “The long period of indiscriminately buying any dip might be coming to an end.” Today it’s official, and from the same JPM, in its closing day trading note we read that “dip buying is officially dead and stocks (esp. US ones) are no longer impressed by promises of central bank largess.”

From Adam Crisafulli’s LookBack at the Market

Market update – dip buying is officially dead and stocks (esp. US ones) are no longer impressed by promises of central bank largess. The reason the SPX has only witnessed insipid rally attempts during this weeks-long swoon is the absence of robust dip-buying.

In years past (when multiples were lower and Corporate America and the US economy were earlier in their recovery process) investors were confident in the SPX rebounding to fresh highs following any material dip and that helped keep sell-offs rare and brief. However, w/the economic and profit cycle advanced and multiples full that reservoir of dip buying doesn’t exist and rallies are now being looked at as opportunities to fade (and not something to be chased). This isn’t to mean the fundamental backdrop is nearly as bad as the YTD sell-off signals – economic data is holding up OK and (perhaps more importantly) the tone from CEOs (both on CQ4 earnings calls and during Davos interviews) is a lot better than both the present market and media narrative would suggest.

However, the current multiple/estimate framework is a formidable one and w/$120 and 16x considered “best case” scenarios its going to be hard for the SPX to lift much above the low/mid-1900 range (1950 is less than 5% from present levels, not compelling enough to fuel a wave of broad buying). As far as central banks are concerned it isn’t that they’ve “lost control” or are “powerless” – the world’s big CBs (FOMC, ECB, BOJ, BOE, and PBOC) remain extraordinarily accommodative and the fundamental landscape would be much worse w/o their actions. However, the relationship between accommodation and sentiment isn’t linear and the likely next CB steps are either too incremental to impress (mild adjustments from the ECB w/the Fed and BOE only staying on hold for longer) or structurally damaging as the limits of policy get hit (this is the case w/the BOJ and to a less extent the ECB as Eurozone bank investors grow nervous about deposit rates being brought deeper into negative territory).

The present debate is unnecessarily binary – just b/c the SPX isn’t about to sprint to fresh highs doesn’t mean a bear market, recession, or 2008-like environment is imminent. At the Wed lows (1812 on the SPX cash) conditions had become very oversold, sentiment was extremely bearish, and the unrelenting YTD selling was growing tired – all this, coupled w/a handful of OK earnings (XLNX, VZ, etc), a bounce in oil/energy equities (thanks to the inventory, some spurious OPEC emergency meeting noise, and KMI’s earnings), and the CB rhetoric (markets don’t respond to CB words like they did but that doesn’t mean a Draghi press conf. can’t help a deeply oversold market to bounce) helped engineer a (pretty tepid) rally. Flows didn’t spike Thurs and buying for the most part is hesitant (a mix of covering and faster-money “renting”) w/people keeping a close eye on the exit. It seems like this recent rebound should be able to persist for more than 24 hours (thereisn’t as much urgent heavy selling left, as was evident mid-day Thurs when a sell-off attempt faltered) but the low/mid-1900s willremain a formidable ceiling (and the inability of banks to find any support, despite putting up solid numbers overall, is a negative omen).