Investors have been left feeling a bit uncomfortable as the Dow, the S&P and the Nasdaq, have been left in correction territory since the start of 2022.
Emotions are kicking in, and stocks are experiencing the most outflows since March, 2020.
#FinTwit is having a meltdown as half of its users believe the optimal time to buy the dip has come, while the other half believe the apocalypse for equities is near. Even as the S&P and the Nasdaq close over 2% to finish off the tough week, bears are still lurking online, warning everyone that “another 20% correction is coming!”
The breakdown in equities is primarily attributed to the shift in the Fed’s monetary policy, persistent inflation, and nothing more. The broader stock market is acting as if the economy is broken.
Just because rate hikes destroyed the stock market in 1929 and 2000, doesn’t mean the exact thing will happen again. The main difference between the stock market of today, and the stock market bubbles of the past, were earnings.
The bubbles that we saw in 2020 with EVs, internet companies, solar companies, marijuana producers and “meme” stocks, all popped mid 2021. Companies with negative earnings were crushed, as investors fled the scene and parked their money elsewhere. There’s no room for future earnings while interest rates are on the rise.
As the old saying goes; Liquidity drives prices in the short-term, while fundamentals drives prices in the long-term.
Meanwhile, REAL companies with growing earnings and strong margins are seeing their stocks grow. Fundamentals are beginning to prevail.
Guess What Happens Next…
The difference between today and the bubbles of the past is that… everybody knows about those bubbles.
The market is not a storybook. Nothing is how it is supposed to be.
The amount of bears that have come out in the last several weeks, using past data to predict what is going to happen in the stock market, is ridiculous. “Oh, interest rate hikes caused the great depression! It’s going to happen again!”
Some have even started to make a checklist of things that need to happen before a reversal. What do I see?”
I see accumulation at a support level, and a close above the 200-day moving average. That’s pretty bullish to me.
“Butbutbutbutbutbut Remember 2018? The Fed can’t save the markets forever! $SPY hitting $250. Load up on puts.”-random 16-year old who started investing in 2020.
Selling your stocks is never the answer. The only time you should sell stocks is when you are retiring, or when you’ve bought 500 shares of Virgin Galactic (NASDAQ: SPCE) at $50 in June, and you need to visit the hospital after losing 86% of your investment.
If you bought companies like Apple (NASDAQ: AAPL), which has a mouth-watering earnings report on Thursday, why not buy some more when the price was 17% off its high? What stopped you? Fear?
Seasonally-adjusted GDP for the fourth quarter gained 12% year-over-year, as personal consumption rose by nearly $2 Trillion. Even if it falls a few hundred basis points in the next quarter, are you really worried about the growth of our economy for the next 10 years?
Sentiment does not equal data. Buy the dip.