The bear market continues… not a news flash. A sort of pall has fallen upon people. Not the jumping out the window type of panic but more the “things kind of su@k” feeling. A collective understanding that everything is down on your statement but up in the grocery store. People have dug in for the fight and expect it to be fairly long. That’s the general consensus from my client straw poll. Pretty accurate in my opinion.
Some of the things going on now are eerily similar to the 2000 bear market. While history doesn’t perfectly repeat itself, sometimes it mimics it. One of the most noteworthy is the “winners” from the past cycle are always the last to topple. Like AOL, Cisco, Oracle, and Intel in 1999 today we have Meta, Amazon, Netflix, and Google. The core of the FANG stocks that a year ago were the center of the investing universe are now the last to crater. Their declines of 74%, 48%, 58%, and 39% are significantly worse than the general market. But that’s how it works….. yesterday’s rock stars are today's sacrifices. Was that way in 2000 and again in 2008 and again in 2022. Some things “just are”. Looking ahead, some will recover, and some won’t but that’s for another rant.
Aside from the market comparison to the past, there is also a human and psychological parallel to the past. Like in 2000 and 2008 a few comparisons can be made. These are (in no particular order)
My habitually “nervous clients” decide to get out of the markets. The rest stop looking at their statements.
Nobody calls and asks about buying a stock…. any stock….
Nobody calls to ask about putting more money to work. Sad but true. When stocks go on sale its crickets in the ether.
People reluctantly start to focus on their spending and reducing expenditures. An interesting corollary is that when the markets are in “Bull mode” people tend to take a few more distributions and spend more than normal. When the markets are down people actively look for expenses to cut. This is actually a good thing….
Collectively everyone starts their conversation with “how shitty everything is”. The global consciousness is that the economy is bad. All of these observations are not a surprise, nor are they abnormal. But, and I would point out, the markets have already predicted today’s realities. As I repeat over and over…. The equity markets decline starting in January has perfectly predicted the reality of the economy in October. In my opinion, we are in the 6th or 7th inning of the inflation fight and central bank tightening. Corporate sales (Amazon, etc.) are already slowing and the next predictable shoe to drop is headcount reduction (job cuts) for the companies that are in revenue decline (which is most everyone). Most other indicators are rolling over including real estate, auto sales, and luxury purchases, so all the boxes are being checked in the inflation fight. That was THE objective. Kill inflation by slowing the economy. Looking ahead (opinion only…. Not to be wagered upon)…. As the economic news gets crappier, and the cacophony of talking heads gets louder, the markets will actually start to move north. Slowly, and imperceptible, the upward march will begin. Usually well before the pundits call the bear market over. A bounce that isn’t a head fake. Historically, equity markets begin the rise before the Fed stops tightening (raising rates). Usually, the second to last rate hike. Markets are leading (and accurate) predictive indicators. Always have been, at least in my 25 years on the job. Yes, it could get worse. Exogenous factors are always possible, but the downside is much less than it was a year ago. As the bear runs its course, the future look gets better and better. Yeah, call me an idiot but that too is how it works. As the excess of the past washes away, the future has a base to build on that’s not dependent on zero interest rates or mailbox money. That too is a really really good thing.
As always, thanks for listening and we welcome any and all feedback on this or any subject. If you know of anyone who would enjoy getting this (or any other) rant, let us know and we will add em to the list. Have a great rest of the weekend and an awesome week.
Ed Stiles
Frank Vance
Tammy Stiles