Almost Nobody is Leaving This Unscathed
What’s really fascinating is how the markets have changed their views on the so-called FAANG complex. For one, this group of stocks is now very different than it used to be since Apple’s size is nearly 5x that of Meta Platforms (Facebook), but after Amazon’s -15% day following earnings last week, it’s a new dawn for giant tech.
Think about it this way: NVidia was down 35% in April and Google was down some 20%, so the market is clearly starting to value their worth not as invincible growth stocks but as value companies.
This is a whole new way of looking at businesses, which wasn’t deemed as important for the past 12 years. Profits were dismissed while growth and expansion were highly prized, but this is changing.
Today, a CEO facing the choice to use debt in order to hire staff and launch new ventures understands that doing this might not be what their shareholders would like to see.
What shareholders are interested in is the bottom line, and if a company you’re a shareholder of is not profitable, the market has no patience for it.
We’re entering a world where hiring to expand will be seen as risky while cost-cutting and increasing margins at the expense of building new product lines and biting into others’ market share while losing in the bottom line won’t be the norm.
This big-picture change in market mentality has caused investors to rethink their portfolios, and algorithms have sent 45% of stocks down over 50%, 22% of stocks down over 75%, and 5% of stocks down over 90%:
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Walking around town yesterday, a sky filled with clouds blocked the rays of the sun altogether.
The sun wasn’t hitting any of us.
It was hot but not sunny, and one kid asked his mom where the sun had gone.
This very eloquent mother had taken a couple of fruits to show her son that the sun didn’t go anywhere. She used them to really explain the relationship between the sun and the Earth and how the clouds temporarily blocked rays so that he couldn’t see them, but the rays were still beaming and others were able to see and enjoy them.
The sun has not set on the global economy or the American economy.
We don’t see it because we’re being blocked by clouds of inflation, supply chain bottlenecks, Russia’s war, a nuclear-armed military force with its back against the wall, and a food crisis that’s looming.
It’s hard to be excited when the only hot market is real estate, and it looks unsustainable.
When stocks falter like this, investors normally flock to bonds, the safe haven, but they’re not… they are SELLING bonds as well!
This is only the 4th month in the past 49 years where the S&P was down over 5% and Treasuries were down by more than 2%:
What’s next, then?
What got us into this mess is a Federal Reserve that wasn’t willing to take bold actions when it needed to, and it will take a brave Federal Reserve to get us out of it.
In my opinion, we’re several months away from the ship turning around.
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