"It looks like we are doomed..."

That is the ominous warning from Chris Rupkey, chief financial economist at MUFG Union Bank in New York, as he reflects on the ugly reality that is slowing revealing itself from behind Oz's curtain of disinformation about how awesome the economy and earnings really are.

He's not wrong - one glimpse at the ugliness of real 'hard' economic data (at its lowest in a year) opposed to the hope-strewn surge in 'soft' survey data, suggests reality remains a long way from most people's perceptions for now...

Certainly in the short-term, things have suddenly escalated quickly as US markets catch down violently to the rest of the world (no, not decoupled, just lagged)...

In fact, "if history is any guide, traders should proceed with caution,” Will Geisdorf, technical strategist at Ned Davis Research, told clients in a note this morning.

The S&P fell in 13 out of the past 15 sessions, which happened 21 other times since 1931. When such sell-off has occurred, the S&P fell on average 0.2% five days and 0.8% 10 days later, 1.7% 21 days later, before gaining 2.1% 63 days later.

“What do we need to feel confident that a bottom is in place? A breadth thrust, which we haven’t seen since just after the 2016 election” “What makes this case unique is that it is occurring within a secular bull market. Typically, this type of negative price action is associated with a secular bear."

And as Bloomberg reports, bad days are coming in waves. Of the five worst sessions since 2015, two have come in the last two weeks, with the S&P 500 and Dow Jones Industrial Average erasing gains for the year on Wednesday.

The S&P is on track for its worst monthly loss since 2009...

Bloomberg adds "The pros are perplexed -- why now?"

“I’ll be honest, I have a hard time explaining this,” said Patrick Palfrey, equity strategist at Credit Suisse. “There isn’t a single item that is the smoking gun behind the selloff. Concerns around trade or tariffs, concerns around valuations, concerns around peak earnings -- you name it, and I promise you I’ve heard a client trying to attribute it to that. I don’t think any of them fit.”

The charts suggest there are a few reasons to believe the best is behind us...

Valuations are extreme to say the least...

The biggest global financials are collapsing...

A Double-Top in the US?

And Semis trading at 13-month lows suggest the Double-Top is in...

Inflation fears, rate spike trajectories, The Fed making a policy error, China? Certainly it appears China is losing control of various parts of their ponzi...

But, as Bloomberg notes, while volatility may feel out of control, there are real problems in the economy: rising financing rates and evidence companies can’t pass costs along. Interest rates may be depressed by historical standards but they’re not low compared with where they’ve been through most of the bull market.

“The market is starting to believe that we won’t have any growth at all next year and that’s just wrong,” said Paul Zemsky, chief investment officer of multi-asset strategies at Voya Investment Management LLC in New York. “It’s starting to price in significant interest rate increases and a significant slowdown in earnings growth. It’s getting to a point where it’s overdone.”

But still, the narrative remains that 'nothing has changed' and this is sentiment-driven...

“People have been tiptoeing to 2018 largely with their eyes wide open, but the markets are clearly overreacting,” said Jack Ablin, chief investment officer at Cresset Asset Management. “The selling activity is heavily influenced by emotion. I’m not really seeing other factors confirming the markets rout, and I’ve been trying really hard.”

Isn't the whole 2009-lows-onward rally about sentiment? Sparked by the biggest inflation of central bank balance sheets in the history of man?

But it's actually different this time, as in fact, something significant snapped in 2018 as Bloomberg's SMART Money Flow Index shows (which tracks the relative performance of the open to the close on an aggregate daily basis)...

As Bloomberg notes, regardless of its predictive value, the index is useful for its reflective value: it paints a picture of how the U.S. stock market has tended to be much stronger at the open than the close this year. Perhaps that lends credence to the theories that the return of volatility in 2018 has created de-risking by market makers and systematic quant strategies that react to price swings, rather than discretionary bearish selling.

We give the last word to Chris Rupkey, who had the first word above, as he warns:

“Why shouldn’t stocks fall nearly 10 percent? New home sales tumble on the Fed’s rate hikes and promises of higher rates to come. Trump calls monetary policy loco, and the stock market is saying maybe the president is right."

Maybe so - especially as the ultimate 'put' under all global asset markets (blue line below) has started to collapse and drag the world's wealth with it...

But, but, but, rates were going up for the right reason, right?