Investing Update: What's Priced In?
Investing Update: What's Priced In?
What I'm buying, selling & watching
After Thursdays’s complete reversal after the hotter then expected inflation read of 8.2%, the market went from down big, to up big. To me, that pulls into question, what does the market have priced in? How forward looking is the market right now?
The inflation number is still hot and a major issue. More fed interest rate hikes are coming. A recession is forecasted and talked about by literally everyone. Jamie Dimon the CEO of JPMorgan warned this week that a US recession is likely in 6 to 9 months and the S&P 500 could fall another easy 20%.
Nobody wants to buy and the market is clearly oversold. If everyone has the same consensus views wouldn’t the market have that and more priced in? With groupthink in investing, you historically want to be the opposite of consensus? If you’re all on the same side of the trade, that’s when the market does the opposite and you get crushed. Diversification and a long-term vision is one way to win in the long run.
Markets bottom when they stop going down on bad news. Bad news has surely dominated the headlines and did so on Thursday. The market is way oversold and sentiment is in the toilet. As the chart below shows the only year that has seen a higher percentage of down days in the S&P 500 than this year, was 1974.
After the roller coaster day Thursday, Ryan Detrick produced an interesting chart. This shows when the S&P 500 closed more than 5% off the lows and coming off a 52-week low. The signal dates in green are noteworthy, March 2009, December 2018, March 2020 and now October 2022.
A bell doesn’t ring at the bottoms. As I wrote in last week’s post You Don’t Know, I Don’t Know, Nobody Knows, we don’t know what’s going to happen. You, me and everyone else will just continue to make our best educated guesses on where we’re headed and invest accordingly.
What Happened Thursday?
I’m still not quite sure what occurred Thursday. I think everyone was left wondering the same. Remember the market had been down for 6 consecutive days leading into Thursday. Then in the morning the inflation number came in at 8.2%, which was higher than expected. From there the market fell. The S&P 500 fell 2.39% and the Nasdaq 3.15%. But in a span of a few hours it did a complete u-turn and turned green and then rallied on the day. S&P 500 finished up 2.60% and the Nasdaq up 2.23%.
As you see below, it was the 5th-largest intraday swing in the S&P 500 since 1962 and 4th-largest in the Nasdaq since 1989.
What This Bear Market Looks Like
This is an excellent chart illustrating what we’ve seen happen from the Jan 4th highs. A full on textbook bear market. We can see the clear bear market rallies that ultimately die and the market heads lower where new lows follow. But sooner or later one of these rallies will stick. When that will be, nobody knows.
October Is For Bear Market Bottoms
Bear markets don’t like when the month turns to October. There have been more bear market bottoms in October than any other month since 1971. October was the bottom during the 2002 and 2011 bear markets. The other two most recent bear markets in 2009 and 2020 bottomed in March.
Moves I’ve Made
CrowdStrike (CRWD 0.00%↑) During Thurdays early morning selloff I saw CrowdStrike fall below $150 a share. This is one of my favorite long-term stocks and had to add more this stock. I added more shares to my position at $144 a share.
VanEck Semiconductor ETF (SMH 0.00%↑) I had indicated in my last Investing Update: Are Midterms the Catalyst?, that I was watching the SMH ETF. I bought it at $167 on Thursday. My feeling is the semiconductors sector is grossly oversold. Similar to the oil selloff in 2020. Demand for semis will be back. It's also the new modern day oil. Everyone relies on these in our everyday lives.
In addition, the Biden administration announced more action towards semiconductor exports to China. Continuing to kick this sector when it’s down. This may not be the bottom, but there is a ton of bad news that is in the semi sector and I feel comfortable getting in here.
My view has not changed from what I said in my last Investing Update: Are Midterms the Catalyst?;
The midterms in the United States are on November 8th. I plan to be positioned for a midterms stock market spike, followed by the annual Santa Clause rally into year-end.
Does it feel good buying right now? Heck no! Is there anything that you could buy right now that you’d feel good about? Probably not. But that’s what it’s like during bear markets. With a long-term time horizon I know I’ll look back and be happy I bought during these times. History shows us that. But in the moment it’s not easy.
The Coffee Table ☕
Sam Ro who I may have to start referring to as The Macro King, is just dropping fire in his Sunday morning economy and markets newsletter on TKer. His Sunday piece has charts and data on what seems like everything that’s going on in the economy. This weekly newsletter piece has become more valuable to me than reading the Saturday Barron’s. Yes it’s that good! Check it out here.
Kyla Scanlon who writes Kyla’s Newsletter, wrote an in depth piece on what is all going into the fed’s policy and the US dollar, entitled Pumpkin Policy and Dollarominos. It’s very insightful and informative.
Neat: The Story of Bourbon is a beautiful documentary of the history and how bourbon is made. I learned a ton about bourbon whiskey and what all goes into these spirits. It really makes you understand and appreciate the bourbon craze that has been going on. It was so good I’ll watch it again.
After trying for months, this past weekend I was finally able to get a bottle of my favorite bourbon, Blanton’s. If you’ve never tried it, make a point to. Trust me!
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Disclaimer: This is not investment advice. You should not treat any opinion expressed as a specific inducement to make a particular purchase, investment or follow a particular strategy, but only as an expression of an opinion. Do your own research.