The Fed could raise rates 1/4 point per quarter for the next five years without causing a recession, but it might be a really tough time for stock investing.
I moved a bit of money into a couple of Muni CEFs today. Turns out I’ve been more-or-less accidentally shifting money to a whole slew of various funds yielding in the 5% to 9% range.
My little dashboard has gone to -7 pessimistic/bearish. While that’s near a bottom without the SMA slope and DBE firing on the S&P, the Russell / small caps are absolutely in a bear.
The first bottom signal started tentatively raising its hand Friday, at an extreme. Similar to but more simplistic than Mungo’s.
As has been said, the market has rolled over and dropped like an acrobat in an air show. This has the markings of another taper tantrum or the CV panic of Feb-March '20. “In the short run the market is a voting machine…” and the markets have voted heavily against Powell both tapering and raising interest rates at the same time.
The carnage in the hypergrowth tech world is truly astounding. Some names have gotten to 2000-01 levels of damage (after '99 levels of overbought), but it’s worse because it’s happened in what, 8 weeks? (e.g. Upstart).
FC
The carnage in the hypergrowth tech world is truly astounding. Some names have gotten to 2000-01 levels of damage (after '99 levels of overbought), but it’s worse because it’s happened in what, 8 weeks? (e.g. Upstart).
FC
——
I dont disagree that it has been a brutal drop for growth stocks.
But why cant part of the answer be that they simply went up too much in 2020 and parts of 2021?
We had a pandemic.
And markets went overboard to the upside.
Almost like a shot of adrenaline on an injured person. You need to come down off that artificial high at some point, get healthy and reset.
Valaution expansion in growth kicked into gear in 2018, accelerated in 2019, and in Jan/Feb 2020 they were still elevated.
Covid crash was artificial, but while the initial drop was overkill, the subsequent rise made no sense. Cloud, ad tech, peleton, and how about ZM?
ZM was rich pre covid. A bit further and it will be back to pre covid prices, yet they are a $4b runrate vs barely doing $1b.
Maybe ZM was too high prior to covid, got way out of whack, and is starting to approach something rational via multiple contraction now.
I welcome these drops, because maybe the reset gets us back to fundamentals vs pure mommentum/meme/yolo/fomo nonsense.
Dreamer
Dreamer, I don’t disagree. All we can do is watch the board; in submarines they call it the Christmas tree.
The fact of the market in recent years is the billions of dollars the Fed has pumped into it secondarily. With ZIRP, there’s been nowhere else for the Banks to put the money; so, Momo has become a permanent feature of the market.
Now that all that betting is unwinding - and a LOT of the money went into stoking the momentum fire - the institutional rush for the exits is (almost) as predictable as it is annoying; because many investors mistake the buy rush and momo for an increased permanent valuation. What it is is a place to generate returns until the party is deemed to be over, which has happened. It wasn’t about fundamentals on the way up (except at the beginning), and it’s not really about it now.
Most of these hypergrowers are only back to where they were last June to September - but the now-unwinding of the blowoff top in Q4 kills people that finally jumped in late.
None of those stocks can be valued properly on earnings because the low accounting earnings make the multiples ridiculous. It’s all revenue growth based.
On Friday there were 8 NH & 526 NL on the S&P and 22 NH & 1323 NL on the NASDAQ.
Could this be forming a bottom?
The carnage in the hypergrowth tech world is truly astounding. Some names have gotten to 2000-01 levels of damage (after '99 levels of overbought), but it’s worse because it’s happened in what, 8 weeks? (e.g. Upstart).
While Upstart has been slaughtered, it’s still a long way from reaching the total drop seen by speculative tech high-flyers in 2000-2001.
Updated from what I posted on the BRK board recently:
Saul stocks have dropped ~40% on average since November? That could happen again, again, again, again and AGAIN before they find bottom.
As Naj pointed out over at Sauls recently, Amazon went from 113 down to 5.5 from Dec. 1999 to Oct 2001, even while Amazon was executing their business expansion remarkably well during that time period.
UPST is almost through its 3rd 40% drop from its high of $390 back in November, closing at $93 Friday, while a price of $84 would complete the 3rd 40% drop, with 3 more to go before dropping as much as Amazon did.
Of the ‘Saul’ stocks I’ve superficially reviewed, Upstart looks the most interesting because they’re still in robust hyper-growth, have a huge market to address, and they are already showing net GAAP profit. I’m not buying it yet, but if does fall way further from here, I’ll probably pick some up.
Individual stock losses of 90% happen. Cisco went from a $82 high to a $8 low (March 2000 to October 2002). Three MI posts near the October 9, 2002 US equity market bottom:
“I feel like Argentinian currency.” https://discussion.fool.com/a-dark-day-17968030.aspx
“I didn’t think it would happen to me” https://discussion.fool.com/quoti-thought-it-was-all-those-other…
“BIG, BIG gains with DELL and CSCO and others” https://discussion.fool.com/author-jansz-date-73002-number-13059…
“held Cisco at $82 and sold at $13” https://discussion.fool.com/in-2000-2001-after-the-dotcom39s-bur…
VTI VGT
year Large Cap Blend Technology TechGrowers
1998 23 63 95
1999 24 81 236
**2000 -11 -38 -52**
**2001 -11 -25 -39**
**2002 -21 -38 -49**
2003 31 50 67
2004 13 11 47
2005 6 2 -1
2006 16 7 24
2007 5 19 6
2008 -37 -42 -41
2009 29 55 38
2010 17 20 39
2011 1 3 -18
2012 16 18 10
2013 33 37 34
2014 13 19 -7
2015 0 9 -4
2016 13 7 -10
2017 21 33 56
2018 -5 2 56
2019 31 49 51
**2020 21 46 182**
**2021 26 30 -2**
Do you know the cagr of the tech. growers?
Post-discovery, from 20200326:
Screen CAGR GSD MDD UI
TechGrowers_20200326_rdutt 44 86 -56 25
SP1500EqualWeight 46 22 -16 2
https://gtr1.net/2013/?~TechGrowers_20200326_rdutt:h21f0.4::…
https://gtr1.net/2013/?~SP1500EqualWeight:h63f0.4::pref%28sp…
This may be what the market is doing, but I don’t see how the Fed can raise rates substantially given the debt load. Every quarter point raise squeezes out spending somewhere else.
I don’t see how the Fed can raise rates substantially given the debt load. Every quarter point raise squeezes out spending somewhere else.
Isn’t that kinda the point? To cool off inflation by reducing demand/spending?
This may be what the market is doing, but I don’t see how the Fed can raise rates substantially given the debt load. Every quarter point raise squeezes out spending somewhere else.
Perhaps in a rational situation, Every quarter point raise squeezes out spending somewhere else. But we are not rational. Every quarter point does not squeeze out spending, but just adds to the national debt. The government can do this with impunity because it just prints the money to pay the interest on the national debt. Ultimately it will default on the national debt in one of two ways:
1.) Keep printing and thereby inflate the debt away.
2.) Just do an outright default and cancel the treasury bonds openly.
Option 2 is more honest (if you can use the word in this situation), but politically unacceptable, so they will just continue with option 1.
Every quarter point does not squeeze out spending, but just adds to the national debt. The government can do this with impunity
Not really. Or at least, not to a first approximation.
Ignoring the current bout of purchases of bonds by central banks, which is (we hope) not about to become normal in the Weimar sort of way,
governments can set short term rates but markets set long term rates.
A bit of an overgeneralization, but not that much.
The main way governments can control long term rates is by doing things that will cause inflation to rise or fall.
Places with higher inflation will have to offer higher rates to tempt bond buyers.
Jim
hey mungo,
how those bottom indicators looking now?
feel like we are close to a bounce soon.
Dreamer
how those bottom indicators looking now?
Looks like it will make some “short term bottom” noises today, but not in a serious way.
Less emphatic than December, for example.
And of course they often run for several days in a row.
The major bottom signal still far from triggering.
These models have built into them that things have to be bad (in some ways) for a minimum amount of time.
The recent turn has been too abrupt for the model to believe that anybody is seriously at the capitulation stage yet.
It takes a while for people to build despair.
Jim
Looks like it will make some “short term bottom” noises today, but not in a serious way.
Less emphatic than December, for example.
And of course they often run for several days in a row.
Feels like a short-term bottom to me also.
bounced
NQ 13800
SPX 4250 ish
ES_F was 42xx
So NQ back up to 15800 or so, test things out, and fall on back and test this low.
Something like that.
May be a long and choppy 1H of the year anyway.
Dreamer
how those bottom indicators looking now?
feel like we are close to a bounce soon.
At the start of January I was planning to buy some BRK-B and gift 10 shares to each of our kids. That was about $3000, as BRK was right at 300.
But before I got the chance, BRK popped up to 305, and went marching up day after day up to 325. The idea was to give them each $3000, not $3250.
So I put in a GTC limit order at 300, hoping that the price would swing back down at some point.
Friday, after the market got crushed a few days in a row, BRK got down to 305, so I figured it would hit 300 soon.
But Sunday night I looked at things especially the volatility and thought maybe it might drop a bit more, so I changed my bid to 297. Figured it that didn’t fill by noon I’d just take whatever it was near 300.
Big bounce intraday. Low of 296, closed at 304. We’ll see what tomorrow brings. But now our gift to the kids is on track.
how those bottom indicators looking now?
The ‘extremely simple’ NYSE bottom indicator that was tested / used during the 2020 carnage also signaled a minor bottom today (using data from the WSJ Markets Diary). This is the first signal since 23rd March 2020.
For those that would like to refresh memories the description & 2020 performance is here (the whole thread is also pretty interesting for a potential ‘get out of the market’ indicator that I should look at for recent performance also).
https://discussion.fool.com/simple-bottom-detector-performance-3…
The ‘extremely simple’ NYSE bottom indicator that was tested / used during the 2020 carnage also signaled a minor bottom today (using data from the WSJ Markets Diary). This is the first signal since 23rd March 2020.
It’s also worth noting that the equivalent date in 2020 would have been 26-27 February 2020 (and although the speed of collapse seems remarkably similar to that timeframe I’d hesitate to use that disruption as a model for ‘modern bear markets’). This first signal would have been far too early to invest on that occasion & so it seems worth keeping Jim’s following point in mind (from above) …
The recent turn has been too abrupt for the model to believe that anybody is seriously at the capitulation stage yet.
It takes a while for people to build despair.
Perhaps patience & an open mind?
Jim,
Given that the S&P 500 touched its all time high just earlier this month(January 4, 2022), wouldn’t the 99 day rule suggest that the current drawdown is temporary?
As you noted in the link below, “It has been only a month since a fresh high? An ongoing bull market is a good guess. A year? Deeply dubious.”
https://discussion.fool.com/it39s-very-easy-to-overtune-a-signal…
If my interpretation is correct, do you have a sense of how robust the 99 day rule is?
Thank you for all your contributions.