We Want to Hear From You: As Nicholas Vardy notes in today’s article, the current state of the market is toxic, especially for inexperienced investors.
It appears the mixture of sky-high inflation, looming interest rate hikes and Russia’s unprovoked invasion of Ukraine has sent the market into a tailspin. Investors don’t know where to turn or what to think – and rightfully so.
Our publisher – The Oxford Club – put together a one-minute survey to gauge how our subscribers are feeling about investing in this volatile market.
Our mission here at Liberty Through Wealth centers on putting our readers first – and hearing directly from you will help ensure the insights and analysis we provide meet your investing needs.
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Thanks in advance for your time!
– Madeline St.Clair, Assistant Managing Editor
So far, 2022 has not been kind to U.S. stock market investors.
The combination of runaway inflation, rising interest rates and Russia’s invasion of Ukraine has been toxic for equity markets this year.
The numbers aren’t pretty.
The Dow is down 9.39%. The S&P 500 has tumbled nearly 13%.
But it is tech investors who have borne the brunt of the sell-off.
The Nasdaq Composite index has already fallen nearly 20%.
The poster child of the recent bull market – Cathie Wood’s Ark Innovation ETF (NYSE: ARKK) – is down 41.24% just this year – and has fallen more than 70% from its all-time high. (Don’t say I didn’t warn you.)
Wood’s calls for investors to “buy the dip” in her money-losing innovation stocks are ringing increasingly hollow.
I believe it is time for investors to face reality.
The current slump in U.S. tech stocks is more than a short-term “tech wreck.”
Instead, it is a crash that has morphed into a full-fledged dot-com bust 2.0.
And that means the strategies that will make you money in 2022 are very different from those that worked in the epic tech bull run of 2020-2021.
Tech Wreck 2021-2022
Look beyond the market averages, and you see a far more disturbing picture than the headlines suggest.
The crashes of speculative, unprofitable technology stocks have been far more brutal.
Consider these remarkable statistics cited last week in the London Financial Times.
Almost two-thirds of the 3,000 stocks listed on the Nasdaq have fallen at least 25% from their 52-week highs.
Almost 43% have lost more than half their value.
Nearly 20% – many of them Wood’s favorites – have tumbled over 75%.
This is the Nasdaq’s worst performance since the financial crisis of 2008.
The Nasdaq has now lost well over $5 trillion since its November peak.
That’s more in dollar terms than it lost throughout the entire unwinding of the dot-com bubble between 2000 and 2002.
It’s roughly the equivalent of Apple (Nasdaq: AAPL), Microsoft (Nasdaq: MSFT) and Meta Platforms (Nasdaq: FB) being wiped from the face of the Earth.
The scale of wealth destruction – and the pain it has caused investors – is unprecedented.
Yet it could have been far worse.
The resilience of Big Tech – especially Amazon (Nasdaq: AMZN), Apple, Alphabet (Nasdaq: GOOGL) and Microsoft – is obscuring the extent of wealth destruction in tech stocks.
Except for Meta’s one-day 26% crash, Big Tech has outperformed the broader Nasdaq.
That’s because Big Tech has become staggeringly profitable over the past decade.
But even that does not make Big Tech immune to long-term declines.
Meta’s one-day $251 billion crash shows how violent the market’s punishment can be when Big Tech disappoints. The same applies to fellow FAANG stock Netflix (Nasdaq: NFLX).
Such sharp sell-offs confirm that even slowing growth can attract the wrath of Wall Street.
Today’s State of Play
Investors have lost their appetite for speculative tech stocks.
For the first time since December 2008 – close to 14 years ago – fund managers surveyed by Bank of America are now underweight tech stocks.
Looking ahead over the next 12 to 24 months, here’s what I see…
First, investor appetite – and tolerance – for “innovation stocks” is not coming back anytime soon.
It comes down to the math of how financial analysts value companies.
In discounted cash flow models, the more distant a company’s profits, the greater the negative impact of rising rates on valuations.
Put simply, rising interest rates are kryptonite to tech stocks high on promises but low on profits.
Second, inflationary environments favor hard assets like commodities.
Already, the top-performing hedge funds of the past quarter are those that bet big on commodity stocks.
I expect this to continue.
Finally, geopolitical black swans like Russia’s invasion of Ukraine always spike uncertainty in markets.
Investors hate that.
So, yes, as I wrote last week, the U.S. market is oversold. And it will bounce strongly on any good news from Ukraine.
But that’s a short-term expectation.
The current tech rout – call it the dot-com bust 2.0 – has far more in store for 2022.
Sell innovation stocks and buy commodities.
You’ll thank me later.
Click here to watch Nicholas’ latest video update.