VanEck Semiconductors ETF SMH,
It decreased by 12%.
Nasdaq Composite Index,
The S&P 500 SPX is down 9%,
Dow Jones Industrial Average DJIA,
and the Russell 2000 Index RUT,
Both decreased by 5%.
Now this is a real sell-off, at least in the world of technology and cryptocurrency. This is what the decline in ARKK and Bitcoin looks like:
A drop of 20% from top to bottom is considered a bear market by most definitions. Seeing this happen over 15 trading days could be considered a breakdown.
In the past month or so, as the market has rallied strongly from early summer lows, many traders and pundits have decided that the Fed will quickly shift from focus on fighting inflation to cutting interest rates to help support asset prices (repeatedly).
This has been the Fed’s playbook for the past few decades, right? They called it the “Federal Reserve Fund”. But as I’ve been saying in the last year since the bubble bull market came out, we’re in a new paradigm.
The game guide we’ve used for the market, the Federal Reserve, and economic cycles throughout my entire investing career goes back to the mid-1990s, when technological innovations and productivity improvements streamed through the economy and kept inflation low.
With the advent of the coronavirus and the trillions of dollars the federal government and the Federal Reserve pumped through the system — not to mention the uncertainties in China, Taiwan, Russia and Ukraine — we’ve entered a new paradigm.
The Fed cannot cut interest rates anytime soon if inflation does not fall to 2% to 3% levels. While it’s great to see US inflation creep down from its new levels – 10% two months ago, the Federal Reserve cannot declare victory at 6% inflation – or at 5% or even 4%.
There is no guarantee, and in fact, it may be Unlikely That inflation is heading back to the 2%-3% levels it was in during the old model. Inflation could drop to 4% this month and then bounce back to 6% next month and then drop to 3% and then reach 7%. Inflation does not always move in a steady manner.
Looking back, when the stock market approached post-financial crisis lows in early 2009, I explained to Ron Paul and Peter Schiff why I predicted the US economy would boom again and the stock market would enter a bubble that could last for years. , in large part because the Federal Reserve and the Democratic Republic were about to print as much money as possible, without having to worry about inflation.
This time things are different. Inflation is real, it’s global and hasn’t stopped yet, let alone down to 2%. The fed funds rate can rise to 6%, 7%, or higher before this cycle ends.
You don’t have to invest based on these general and market themes. The good news is that even in bear markets – especially in bear markets – you can find individual stocks that will triple during recessions. You can find long-term buying opportunities with names that are about to change the world but are criticized by short-sighted investors.
Remember, I bought Apple Inc. AAPL,
March 2003 and have owned it ever since. Here is what the Apple and Nasdaq graphs looked like for three years when I had the opportunity to buy Apple at $12 a share (split rate of 25 cents a share):
Here’s what the Apple and Nasdaq charts have done since March 2003. That flat orange line along the bottom is the Nasdaq chart, up nearly 800% since March 2003 – very good performance. But not compared to Apple’s roughly 62,000% return over the same time frame:
I plan to find another Apple for us at 25 cents and another Google GOOG,
at $45, another bitcoin at $100, and a few stocks of revolution that could go up.
Do I even remember Apple dropping 50% in a straight line during the heavy selling in 2008? Or did it drop by 40% during the 2020 Covid Crash? yes. The point is that we cannot time market movements within our portfolios. But we can find quite a few stocks that are going up more than anyone thought they could.
The big money is made on Wall Street by investing in the stocks of the great companies that change the world when prices and valuations go down.
I plan to continue to do so, focusing on top companies in space, hiring, biotech, and possibly in the metaverse and AI as well. Stay in touch with what matters, not the noise, but let the noise open up opportunities to buy big stocks at better prices.
Cody Willard is a columnist for MarketWatch and editor of the Revolution Investing newsletter. Willard or his investment firm may own or plan to own the securities mentioned in this column.
Hear what Ray Dalio says at MarketWatch’s Festival of Best New Ideas in Money September 21-22 in New York. The hedge fund pioneer has strong views on where the economy is going.