Has the market bottomed yet?
What do you guys think? ….
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imo no. Markets have never bottomed before a recession, if one occurs. And there is basically a 90%+ chance there will be a recession in the next 12-18 months.
That's not how it works. You're thinking too linearly.
What exactly do you define as a recession? We already had two quarters of negative gdp growth. We've already had a recession in 2022.
A recession is usually a product of weakness in the labor market. We haven't seen it yet. Historically when the unemployment rate has risen by at least 0.5% from its cyclical bottom, it has been indicative of a recession. So when (not if) the unemployment rate goes to 4%, we will be in recession this year.
Market's are forward looking. By the time the "real recession" occurs, the market likely is looking at the next bull run. The problem right now is we don't know when/how deep, this "real recession" will be since the Fed isn't sure either and will just keep firing away with rates until inflation is in check. Plus with a still decent labor market, that makes the timing even more tricky. So it's a long way of saying, I don't think the market has bottom yet. But if I had to give a WAG, I would say market bottoms 4th quarter.
Be right back, let me check my crystal ball. 🤷🏼♂️
Nope. Buckle in cos 2023 is gonna be a wilddd one.
Could you expand on why you believe this to be the case?
Well just looking at the fundamentals, there is no indication that what caused the selloff is close to being over. The market fell initially based on massively overvalued markets (everything bubble), with tech and crypto being hit the hardest, but there is still a lot of bloat to relieve. Now, the markets are reacting more heavily to a very different economic landscape - the presence of interest rates, which is something new to markets that have overexploited free money for the past decade (tech and crypto are the two biggest culprits, which explains why they have been hit the hardest). There is no indication whatsoever that the interest rate increases will end soon (inflation still at multi-decade highs and has not slowed down much), though there is some indication that the rate increases might be slower/smaller (50 bps vs 75 bps). Combined with the Fed's QT (with QE accounting for a significant portion of previous bull runs), economic realities do not point to a bottom at all. Plus, we just had the WORST year in history for a balanced portfolio of bonds and stocks, with both ending the year in the red, which is very rare. That does not scream bottom to me.
Now, looking at examples of past recessions comparable to this one (2000-02 and early 1980s look to be the most comparable but time will tell if 2008/9 will be as well), it is obvious if you examine them that we have at least 6 more months of stocks falling in the best case, and possibly a 1-2 multiyear bear market. Just examining stock charts will show there is little to no indication of a bottom in the markets.
Summary being there is absolutely nothing that indicates we have bottomed, and most indicators point to more pain before a recovery. So yeah, 2023 will be an interesting year.
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The S&P 500 bottomed on October 13th for this cycle and will not revisit such levels again until we are past ATHs. I guarantee this. Screenshot and save this comment.
Doesn’t feel like a full blown 2008 style meltdown given there is still so much capital available, job market strong, and consumer demand relatively good.
Is it 2021? No but that was hardcore bubble territory.
I feel valuations finally getting to be reasonable. Maybe another 15% - 25% lower from here but who knows!
Personally I have been running our companies relatively conservatively since Q1 2022. Big focus on deleveraging and operating under the assumption that we will lose random vendor terms, credit facilities, etc.
Our feeling for 2023 is similar so we are going to keep running lean, deleveraging, and expanding margin.
All that said, ‘22 was pretty good for us, strong YOY performance and 2023 already trending up 180%+ for the core company I focus on.
What sector are these companies in?
nobody knows shits about fucks. Central banks decide when we pump or dump, they can do this in matter of days. At this point just DCA into your asset class that is probably down to lower your cost per share in whatever market you are invested in. If fundamentals haven't changed, why not buy when its lower at set time frames with disposable income. Wealth is made in bear markets.
Nobody knows and even if they know, I highly doubt you'll be able to time it. My motto for financial success is:
1. DCA into broad index funds for the vast majority of your money. I still think cash is trash despite the fact that markets are risky
2. For the part of your portfolio you actively manage, hold your nose and buy quality. The last decade showed me markets can be irrational for a very long time (in this case, 10 years+). Buying companies that are growing FCF consistently will yield results in the long-run even if you under-perform initially.
To your question, I doubt it has. My guess is the market is underestimating the severity of this recession and thinks the Fed will pivot and start lending at low interest rates again soon. I think inflation will be sticky for a while and banks will need to keep rates higher for longer, which will cause problems for speculative companies that hired a ton of people will financing is cheap. These companies will either go bankrupt or lay off lots of people, which will push salaries down and reduce the money floating around the economy. Higher interest rates will also eat into earnings as companies will have to pay more money to service debt.
All of the above centers around rates staying higher for longer. If they do, I think we'll be in for slower growth for a while. If the Fed does pivot, as the markets think they will, it's off to the races again and it's time to load up on $QQQ.
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