https://www.wsj.com/articles/giant-stock-swings-kick-off-202…
**Giant Stock Swings Kick Off 2022**
**Hundreds of U.S.-listed companies are off more than 20% from highs. Many are in a bear market.**
**by Gunjan Banerji and Peter Santilli, The Wall Street Journal, 1/17/2022**
**U.S. stocks are off to a rocky start in 2022. Under the surface, things are even more volatile.**
**More than 220 U.S.-listed companies with market capitalizations above $10 billion are down at least 20% from their highs. While some have bounced from their lows, many remain in bear-market territory. ...**
**The tech-heavy Nasdaq Composite has been particularly turbulent. Around 39% of the stocks in the index have at least halved from their highs, according to Jason Goepfert at Sundial Capital Research, while the index is roughly 7% off its peak. At no other point since at least 1999 — around the dot-com bubble — have so many Nasdaq stocks fallen that far while the index was this close to its high...**
[end quote]
As widely predicted, the fall in overvalued stocks, especially tech stocks which depend on the crack cocaine of free lending, began when the Federal Reserve observed that inflation was not transitory and announced a program of monetary tightening in the near future. The entire 2020-21 asset bubble was always strongly reminiscent of 1999. This is especially true of companies with a good story (“eyeballs” in 1999, SaaS in 2021) but no earnings now.
https://www.multpl.com/shiller-pe
The Wall Street Journal article has a lot of information on specific companies and also on sectors. They have a bubble chart that starts at zero on the right-hand side and goes negative from there. The hardest-hit sectors are technology and consumer discretionary. The least affected are energy and the financial sector. Most companies cluster between zero and negative 20% but a fair number of outliers have lost 40% or more, including Moderna and Biogen. Some giants, including Meta, Alphabet, Microsoft, Apple, Tesla and Amazon, are on this chart.
There are two key takeaways here.
Valuation matters. Companies that are priced for perfection (not to mention future perfection) in an emergency low-interest rate environment (and an epidemic which is expected to go away soon) will fall when the emergency support is withdrawn and conditions normalize. Companies without a dividend have no cushion against volatility.
The second key takeaway comes from the Shiller chart. When a bubble pops, it often pops suddenly and violently. Valuations may take decades to return to the bubble peak. Personally, I don’t expect to live that long.
Will the bubble burst suddenly or will the valuations gradually leak away like a balloon with a loose knot? Will the Fed chicken out (as it did before) when the market has a taper tantrum and stop its sloooowwww stroll toward normalization?
Wendy