The bond market made me do it.
That's what I think when I see interest-rate sensitive stocks like the drugs and the utilities screaming on pretty much nothing, while the cyclicals and the techs get pummeled for the second day in a row.
There are so many new investors in stocks these days and for the most part, they have only seen stocks go higher. The last two days have been a rude awakening to those who joined the market in the last 10 months, because they now realize what many old hands have known for years: Boy, can you lose a lot of money fast in stocks.
Now, a lot of these newbies chose to buy stocks because they were exciting -- all those "the next Tesla (TSLA) " special purpose acquisition companies, with projections so bountiful that they almost had to be false. (They got away with it, by the way, because under President Donald Trump, there was a ridiculous anything-goes approach to anyone and anything that wanted to come public. This backdoor, this loophole burned people so badly that you can almost call it celebrity arson, as money managers teamed up with famous people to fleece you into buying concepts, not companies, but concepts that fizzled and burned your portfolio to a crisp.)
Many others got caught up in the frenzy of stocks seemingly made for the pandemic, stocks like that of Zoom (ZM) and Doordash (DASH) or Docusign (DOCU) . These were as can't miss as they come, because who, in his right mind, believed that a highly effective vaccine could be in the way when the fastest any vaccine had ever been developed was for mumps which took several years. As someone who has had mumps, I can tell you that it wasn't as dangerous or deadly as COVID.
Others got involved in this market to shoot short fish in a barrel. They went after GameStop (GME) and AMC (AMC) , UWM Holdings (UWMC) and are now going after the shorts in Clover (CLOV) and health care company US Well Services (USWS) . It was a good idea with GameStop and is working, for who knows how long, with AMC, but has been an abject failure with UWM, a mortgage company and I don't think a recent deal with Walmart (WMT) will turn around Clover.
I know this method of making money, or an attempt to make money, is an ephemeral one that has very little staying power, because mob rule isn't rule at all. I know this cohort is mean and mad and angry, because you can't read my column without thinking that I am some sort of Grand Inquisitor bent on ruining a supposedly great way to make money.
But now we have a whole new way to lose money, a broad correction based on the fact that interest rates are going down, not up, catching so many people off-sides.
What's happening here?
Weren't we in the Great Reopening phase of the market, where everything that involved travel and leisure and finance and industrials and oil were slated to go higher and the stocks of consumer products and drugs supposed to continue to go down?
The answer, yes, that is what is going to happen. But there are times where things don't go right, where the entire thesis is being called into question by what the bond market says, because the bond market is much much larger than the stock market and it, not stocks, calls the tune. Right now, the bond market is being quite mysterious and is signaling that the reopening is being put on hold and the economy is actually slowing down and inflation is cooling.
The problem is none of that seems to be the case. The bond market's move, which pronounced as interest rates fall, is indicating - are you ready ski-daddy? -- that we are either going to go back to lockdown or we aren't going to get more people vaccinated or that the inflation, which had been raging for everything from lumber to plastic to gasoline to food and grain, might be collapsing. I think the inflation story had been so palpable that it made Jay Powell look like a lightweight for saying inflation is temporary. When you add in all of the money the government is printing, you have to think that inflation is the primary scourge facing our economy.
Not anymore.
Bonds are signaling that the growth spurt's over and that Powell's dead right, inflation's about the be crushed. That verdict, so contrary to everything we hear, is causing almost all stocks to go down, except for the stocks of food, drugs, utilities and essential retailers, even if they don't deserve to go up. For instance, a major brokerage house last week took the stock of Clorox (CLX) , which reports next week, to a sell, pointing out that it is going to be hit by inflation costs and it's up against some very hard comparisons, because of the national rush to own Clorox wipes to kill COVID at home. Today the stock of Clorox is up 5 points.
In the meantime, the fantastic re-opening stock of Marriott (MAR) , is being crushed, the cruise line stocks like Norwegian (NCLH) and Carnival (CCL) are being obliterated. The bank stocks, so strong last week, have gotten radioactive. The oils, which had climbed along with the price of oil act like they peaked. It's a total mess out there.
So what you do? I have to tell you that as much as I like the stocks that are going higher, because they have good yields and are very safe, I fear that this is just a couple of day rotation and the fickle bond market will soon be signaling that this whole move is wrong.
What's more important, though, is that you new folk have to get used to corrections, especially corrections based on stocks having too much strength vs. the fundamentals.
Yes, I believe in the boom that's coming. I was early in calling it the Roaring Twenties, but you can't just expect that the market's always going to get it right every day. For example, today was supposed to be a good day for Apple's (AAPL) stock because of cool new products, updating the iMac and its digital TV offerings. In a great market, that happens. But welcome to the new old world, the world we had before all the new people and their money came into the market. We are, at last, back in a tape that baffles people and doesn't do what it is supposed to do, the market we lived with before people started buying stocks because stocks always go up.
That era's over.
Will new money go back into the market to take advantage of it? I don't think so, because the market has gone back to its irrational ways, that include among other mysteries, the rollback of inflation. I think new market, if it is going to go anywhere that isn't travel and leisure and shopping is going into the cryptocurrencies, everything from bitcoin and Ethereum to the comical Dogecoin.
As someone who has been in this market for 40 years, I can tell you that days like today, days that make no sense, days that are taking their cue from the bond market's moves, aren't going to turn on a dime. There's not suddenly going to be a rush back into technology. You aren't going to see money materialize in the short-busting crew or the SPACs or the high-flying price to sales tech emperors, ones that suddenly seem awfully naked.
I think with so many stocks that are so close to their highs, it is worth re-doubling your trimming efforts so you can deal with the chaos caused by the bond market. It's not too late to sell some winners. The market's irrationality is a terrible thing to waste.
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