Spain without the "S"
3-Day Market Rout Wipes Out $1.5T in Marketcap
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There’s blood in the streets.
Despite the relief rally on Friday, we are in a period of Fear, Uncertainty, and Doubt (FUD).
Stable cryptos are blowing up, spec tech is getting wrecked with most names down over 60%+, the bond market isn’t any better, inflation continues to run hot, and TikTok influencers are learning that stocks do not “only go up.”
But there’s light at the end of the tunnel. We’ve been here before. It is very important to zoom out, keep a calm head, and remove emotions from investing decisions.
This is the moment when dollar cost averaging provides excellent long-term return profiles. If you’re out of cash - sit and hold unless the thesis is broken.
In this edition of the free newsletter, we will go through the magnitude of the recent pullback and historical precedents. The paid version at the end of the month will cover the macroeconomic backdrop of the sell-off as well as a guideline for “where to go from here.”
This week, in <5 minutes, we’ll cover the recent selloff:
The Magnitude of Losses on a YTD Basis 👉 S&P 500, NASDAQ, Bond market
Attributes of a Bear Market 👉 Checklist + Frequency
What is Actually Working 👉 Energy, Staples
Earnings Period 👉 Did it matter at all?
Spec Tech Wreck 👉 By the Numbers
Let’s get started!
1. The Magnitude of Losses on a YTD Basis 👉 S&P 500, NASDAQ, Bond market
Right now, there is a massive drawdown in global financial assets as 14% of market value has been erased since the beginning of the year.
When we break it down by the indices YTD (numbers as of midday Friday):
We’ve got the NASDAQ (yellow) down ~25% YTD, and the S&P500 (white) is down ~16% YTD, while the TSX (green) is only down 5% YTD (more on that below).
But here is exactly what I mean when I say zoom out.
1 Year charts:
3 Year Charts:
5 Year Charts:
Time horizon matters when looking at risky assets so it’s always important to zoom out.
In the diversification piece I wrote several weeks back, I explained how historically bonds have been a great diversified but have not really been that great lately. And boy is that theory right this year…
“Worst in history” is something you can’t say too often but that’s the bond market we are in.
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2. Attributes of a Bear Market 👉 Checklist + Frequency
When you think of Wall Street, you always think of bears and bulls. A Bear market is defined as a decline of more than 20% often accompanied by negative investor sentiment and declining economic prospects. So let’s look at the checklist:
Down more than 20%:
S&P500…NO - but close
TSX..NO - not close.
Negative investor Sentiment:
S&P 500: YES - many investors shifting to value plays
NASDAQ: YES - death, mayhem, and destruction
TSX: NO - more optimism now in natural resources
Declining Economic Prospects:
S&P 500: MAYBE - Supply chain constraints, inflation rearing its head, but earnings for the S&P500 are still in positive gains territory
NASDAQ: MAYBE - Higher interest rate environment punishing long-duration assets despite solid fundamentals.
TSX: NO - Improving if anything
So overall, I would describe NASDAQ in a bear market, S&P500 as getting there (it will be soon), and the TSX should skate on by if commodities hold up.
But we have seen this before:
Before we continue, let’s check in with our Outrageous Chartered FinMEME Analyst Dr. Patel!
3. What is Actually Working 👉 Energy, Staples
But it’s not all doom and gloom! As the Grinch once said:
If we look at the Oil & Gas market, the Russia/Ukraine conflict has brought a struggling sector in secular decline back to life. We immediately realized that we have not built out nearly enough renewable capacity to keep up with global demand. If we look at the commodity futures and related ETFs, they’ve had a gangbuster year:
Green = WTI, White = E&P ETF, Yellow = Refiner ETF
4. Earnings Period 👉 Did it matter at all?
In a market where fear and contagion are present, fundamentals matter less and less. Since a majority of the recent market runup has been sentiment (multiples), rather than earnings, the drawdown has been dominated by multiple compression as well.
The daily stock performance of a lot of these names around earnings depended much more on macro indicators rather than results. Results in the recent quarters after the pandemic continued to trend up:
While we saw a collapse in multiples:
Conclusion: Macro over micro for now…
5. Spec Tech Wreck 👉 By the Numbers
Here’s is a collection of some of the wild stats right now in the Spec Tech Wreck as the dip keeps on dipping:
And probably one of the most popular (and devastating) charts being circulated…
ARKK -72% peak to trough.
Although many have felt the pain of a dip that keeps on dipping - now is the exact time to plug capital back into the market, or to hold if you’re out of cash.
Stocks finished strong on Friday, but time will tell if it was just more short covering or if we can expect to see any sustained buying to put in a bottom.
Have a lot of conviction that a bottom is in? Sell your house and buy tech stocks.
Just kidding—don’t do that.
Like I said at the top, we’re in a period of elevated FUD right now. This is a time to remove emotion from the equation, stay level-headed, and have a plan which involves looking at the big picture—the macroeconomics.
Trying to catch the bottom, as appealing as it sounds, is NOT a plan.
Upgrade to receive our premium newsletter at the end of the month where I lay out what I’m buying as well as GRIT’s roadmap for navigating this choppy market!
Spoiler: I’m not buying any falling knives but I am snapping up deals!
Until next time. Always Yours. Incessantly Chasing ROI,
-Genevieve Roch-Decter, CFA
P.S. Have you subscribed to our *NEW* CRYPTO NEWSLETTER?
What else we Grittin’ On?
AUTO INDUSTRY. Ford Motor sold off about 8% of its holdings in Rivian Automotive. Ford plans to expand its own EV lineup.
DE-THRONED. Apple is no longer the world's most valuable firm. At $2.43T, Saudi Aramco is the new number 1.
PUMP PRICES. The national average for a gallon of gas hit a record $4.37 this week. In California, the average jumps to $5.84.
CRYPTO INTELLIGENCE. Chainalysis just raised $170M at an $8.6B valuation. That more than doubles their valuation from June 2021.
SBF + ROBINHOOD. FTX CEO Sam Bankman-Fried revealed a 7.6% stake in Robinhood on Thursday. $HOOD Shares jumped 25% the following day.
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