Market Pulse: Selling has been relentless
Special to the Tribune
At times the selling this year has been relentless, especially for the tech and growth issues.
More recently, the large retailers took their hits after reporting earnings, which suffered due to rising energy and labor costs. Nearly everything in their stores arrived in a diesel-fueled truck and diesel prices have soared. The added cost must be passed along and reflected in retail prices.
While the speed and size of the decline in some stocks is surprising a key trend is not. That is the ongoing transition from a focus on growth to a focus on value. The shift began in full force early this year, which is why energy issues — poster children for value investing — are up 50% year-to-date and Nasdaq with its growth companies is off 28%.
We have seen sell-offs of this magnitude and more many times. In March of 2020, as the COVID shutdown unfolded, stocks fell 35%. There was the financial crisis in 2008-09, the dot-com bust in 2000, the plunge after 9/11 and the crash of 1987. Those were sudden and dramatic declines. This sell-off began in January and its impact has been slower. The macro picture plays a part, as always.
The outlook for economic and profit growth has eased due to COVID problems and a partial shutdown in China, the war in Ukraine, a slowdown in demand for new housing, rising interest rates and energy prices. Investors have connected the dots and concluded that value stocks that pay and usually raise their dividends are safer than those with a growth story. They are right.
Fed chief Powell’s policies and misreading of inflation led us to the predicament we’re in now. He kept interest rates too low for far too long and believed inflation was transitory well after it was clear it wasn’t. The Fed bought trillions of bonds and mortgages, only ending the practice in March with a total of $9 trillion on its balance sheet. The money supply has soared 43% in two years. Those monetary policies fueled inflation.
I listen to the parade of investment professionals on CNBC through the trading day. With hardly an exception they are bearish, at least for the near term. That’s a seemingly safe message during sell-offs. But this is a reflection on what the market has done, not what it will do. How many of these analysts will turn bullish if the market continues lower? Very few, I expect. Once prices are higher than now these same analysts will be optimistic.
David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
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