As I’m writing this just before the open in New York, the S&P and NASDAQ are both hovering a couple of percentage pointes above their mid-June lows. The Dow, valuable mostly as an indicator of the user’s cluelessness, actually dipped below its prior lows last Friday.
The first thing to note is that my guess was that this wouldn’t happen–that we would maybe approach the old lows but that most investors had already acted out their fears by selling during the summer.
My experience is that in Asian markets, which have historically been deeply influenced by charts, when a support level cracks, the market quickly sells off until it approaches the next level support level (meaning a locus of broad-based buying and selling–in a sense a former battlefield of bulls and bears). In my experience, US behavior is quite different. For whatever reason, we tend to want to see the abyss opening up beneath our feet before we stop selling. The break below old support is the catalyst for the reversal of selling to buying.
Who knows whether this will still be true in an AI-driven world.
In any event, I think the overall level of the market should be a secondary concern. For us as investors, the much more important task is to try to imagine what the world will look like after this selloff is over and to seek out companies that stand to prosper in the new environment. So much the better if they have been pounded into the ground and are unusually cheap today.
The ideal stock, for me at least, is a growth stock that has lost so much that it is buyable as a value stock–that is, based on here-and-now cash flow and asset value.
Looking at performance since the mid-June lows can be useful, I think, as a way of trying to capture the mind of the market today.
ROKU, for example, was around $73 in mid-June. It’s now $68.
ZM bottomed at around $85 in early May–it was $100+ in mid-June. It’s now $76.
SHOP was $31 in June. It’s $30 now.
In contrast, HOOD, which I hold, was $7 in June and is $9.70 now.
F’s figures (I hold a tiny bit, I’m almost embarrassed to say): $11.25 and $12.25
MGM, another holding: $27.25 and $31.40.
The financial press seems to me to be more stridently negative and more devoid of substantive content than usual. Yes, interest rates are rising; yes, the dollar is strong; yes, wages are up; yes, the market is down. But who doesn’t know about this already? This is usually a contrary indicator.
more tomorrow