The balance sheet of a company is one thing, the financial situation of their customers is another

A strong balance sheet is certainly what you want in a stock right now to state the obvious. A company that is cash rich, has its debt well termed out and generates free cash flow after capital expenditures, dividends and buybacks. It is why people keep hiding in big cap tech, because of their fortress balance sheets. But, there is more to the success of a stock than one's balance sheet. The income statement really matters too and the challenge big cap tech will face is that it is their customers balance sheets that one has to analyze and which many are stretched. It is the financial fate and product demand from their customers that matter the most for big cap tech earnings.

While there is a big problem in itself with an absolute mortgage rate of 7.88%, according to Bankrate, what greatly exaggerates the impact is that it comes after a 40% home price index over the past few years. Another way to compare the home price situation (both price and rates) with previous time frames is to look at the average home price relative to median income. Looking at the Case-Shiller home price index relative to income, the last time mortgage rates were at current levels in 2000, this ratio was at 1.05. At the end of 2022 it stood at 1.69, 60% higher. So when you hear someone say, 'I remember when I had a 12% mortgage rate and I survived', understand that the price of the home that was bought then was a much smaller percentage of that person's income at the time. 

We saw a 17 'Extreme Fear' level a few days ago in the CNN Fear/Greed index which every contrarian should take note in gauging the state of markets in the short term. This was followed yesterday by the Investors Intelligence index which saw Bulls slip to 42.3 from 43.7 while Bears were unchanged, remaining well below Bulls at 23.9. Today AAII said bulls rose 2.3 pts to 30.1 after 3 weeks of declines. Though higher, it remains about 11 pts below the Bears which was up .7 pts to 41.6. The balance of people are Neutral. Bottom line, stocks topped just as sentiment got very extended in late July and that excitement has of course reversed to a point where markets could stabilize in the short term. Again, I emphasize 'short term.' The fate of interest rates, most likely higher from here on the long end, though still a squeeze even if they just stay at current levels, will be the ultimate arbiter past the 'short term.'