Tuesday made it five consecutive down days for the S&P 500. During that span, the index dropped a total of 10.2%. That brutal performance included four consecutive days (June 8 through June 13) that it fell by 1% or more. We haven't seen the S&P 500 drop for five consecutive days since January (Jan. 1 through Jan. 10), but during that span the index fell just 2.6%.
Can anyone say relief rally?
For perspective, consider what was arguably the most volatile period in market history, the fourth quarter of 2008. The S&P 500 started the quarter with eight consecutive down days (Oct. 1 through Oct. 10), which was good for a 22.9% drop. That quarter is legendary, in my view; there were 16 days that the S&P 500 rose or fell at least 5%, but in the end, the first eight trading days told the tale. In the end, the index was down 22.6% during the quarter, so performance was flat after Oct. 10.
All the uncertainty surrounding inflation, how aggressive the Fed will be with rates, continuing supply-chain issues, the plight of the consumer, what if anything the ever-stumbling Biden administration can or will do, and I'd add the ever-growing national debt for good measure, is compressing multiples.
Within large-caps, I am seeing some interesting valuations. This is not "back up the truck" time, in my view, but rather "build out the watch list" time.
eBay (EBAY) now trades for less than 10x next year's consensus estimates, while Corning (GLW) can be bought for 12x 2023 earnings; Intel (INTC) is at 11x next year's estimates. Lowe's (LOW) is down 31% year to date and is trading at 12x next year's consensus, while Conagra Brands (CAG) is at 12.5x forward earnings and yielding nearly 4%. And the list goes on.
Within the restaurant sector, Bloomin' Brands (BLMN) is at 7x forward earnings and Brinker International (EAT) is at 6x, pricing in a recession that I believe is already here. Keep in mind that one reason multiples compress is due to the uncertainty and the prospect that they may be revised downward.
Of course, this is uncharted territory (it usually is). It calls for some dry powder, patience and the ability to expect the unexpected. Many investors have not lived through a period of inflation and might be surprised to see how markets performed during the last couple bouts.
Buckle up...
