Traders,

Banks are back to their bearish ways as we close the week with KRE retesting its lows. Small caps are following suit, with the Russell 2000 now a stone’s throw from last year’s lows. Bears would have you believe doom is imminent and a recession is guaranteed. They may be right (at least about the recession part), but it’s worth pondering one crucial question.

What’s priced in?

With KRE back at its lows, shares are down nearly 50% from last year’s highs.

Meanwhile, IWM (the most economically sensitive of the big four indices) is down 31% from its 2022 peak.

Sure, they could get worse, but at a certain point, the market has sniffed out the downturn and baked it in ahead of time. This is why you hear, “the stock market is not the economy.” And it’s why the historical relationship between the stock market’s annual returns and GDP or corporate profit growth/shrinking year to year is entirely random.

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Chart of the Day: Regional Banks (KRE)

Will old support hold, or is a new breakdown imminent?

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