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No more Free Money — Most of us were not around the last time there was this serious of an inflation problem or an associated tightening cycle.
If you’re under 40, you don’t have great recall back to the 1980s because, well, you weren’t necessarily cognizant of the financial world back then.
There’s another chunk of us who don’t remember the great recession and its associated financial crisis. I’d argue that the government’s financial taps really opened wide during this tumultuous period for markets, and it never looked back.
Until now, Daddy JPow is charged with putting a fork in it. The era of free money is over. Cost of capital is going to rise. Borrowing is going to become challenging, painful even. The liquidity that we once took for granted is going to go the way of the dodo bird.
At the macro level, this about face is only logical. With every yin, there’s a yang, and with every money printer, there’s a piper to pay.
So how does it affect your portfolio?
Well, growth is going to be a challenge for any ticker that has a “growth at all costs” attitude. Indeed, with Tech now the biggest sector in the S&P 500 and obviously a huge component of the Nasdaq, many tech names are going to struggle as their growth slows.
Technology is the biggest drag on the S&P 500, responsible for more than 300 points YTD off the index. This is worth paying attention to.
These names are going to drive any sort of rally, but have forward P/Es come down to a reasonable level? If they are just now touching fair value, is there more valuation compression in-store before we bottom?
Food for thought: by my math, you’d pay less money for next year’s earnings today than any other time this century. Is it time to BTFD?
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