For the first time in months, U.S stocks started out this week with some buying enthusiasm despite a grim backdrop with high inflation numbers. Supply chain dislocations are new ones pertaining more to Ukraine than to China just now. Oil prices are elevated above 100. Housing costs are soaring and food prices are as well. Several companies have announced job cuts and others have re-imposed 10% “cull the herd” annual employment reviews.

In March 2020, the arrival of COVID caused total panic selling. Everyone wanted out and nobody wanted in until the Federal Reserve announced it would be the buyer of last resort for every single asset class. The result was an unprecedented "V-shaped" bottom that caught most people flat-footed. Few believed that such an awful decline could end so abruptly. Pundit after pundit was calling for a retest of the bottom, which never happened as most waited for the “great pullback in the sky.”

This time around it is very different. The  percentage of stocks selling above their 200-day moving averages fell for months and for the NASDAQ finally fell to single digits briefly about a month ago. Right now, those numbers are: DJIA 26%, NYSE19%, S&P 500 19%, NASDAQ 20%, and the NASDAQ 100 18%. They are well below their peaks of 94% last July. Each of these numbers bottomed in June at lower readings and are now trending higher.

We know that trading volumes are very low right now and option volumes have also fallen off a cliff. The University of Michigan sentiment numbers this month have dropped to 50, well below the 85 reading of a year ago, and the lowest levels since the series was first compiled in the 1940s.

All those statistics have made investors quite circumspect. They just want a little bit of good news so that they can feel comfortable reinvesting the trillions of dollars they have sitting in cash. They know the Fed is only halfway through its efforts to raise interest rates. Depending on the day of the week, investors are driven to expect a 1% interest rate increase this month or one half that. At this point over $2 trillion is just sitting on the sidelines waiting for the “all clear” signal to invest. The Fed remains “data dependent.” So the very news that gets investors most excited is the very same news that pushes the Federal Reserve to increase rates faster.

Rather than a V-shaped bottom as we had in 2020, we seem to be carving out a long slow rounded bottom so remain careful. Expect more backing and filling. So far, we have had earnings reports from just a handful of companies, mostly banks that are reporting that consumers are still OK even as they beef up their loan loss reserves. Not much of Q2 was affected by higher rates. It’s the current quarter in which higher rates will show their impact although housing markets seem to have ground to a halt already. We won’t know that news for three more months. Investors were enthusiastic when Goldman Sachs beat its reduced earnings estimates by a dollar and substantially raised its dividend. However, the reported number was still half of what GS earned a year ago, hardly a reason to celebrate?

Before you party hearty, remember that this time the Fed is your enemy, not your friend. Stay focused on companies with 3% dividends to match current three-year Treasury yields. Insist on earnings for the stocks you select and look for better estimates for next year than the current year. Buy on down days. Patience will be its own reward.

Joan Lappin CFA has been called an “investment guru” by Business Week and a “top manager” by the Wall Street Journal. The Sarasota resident founded Gramercy Capital Management, a registered investment adviser, in 1986. Email JLappincfa@gmail.com. Follow her on twitter: @joanlappin. Her past columns appear at heraldtribune.com/business/columns.

This article originally appeared on Sarasota Herald-Tribune: JOAN LAPPIN: Search for stocks with earnings ... and remain patient