January has been ugly for stocks as evidenced by the 7% drop in the S&P 500 stock-index.
That is the worst January performance since 2008.
Well, that is done, so what does it mean for the rest of the year?
More times than not a down January found the equities indexes and averages up for the year.
A usual correction is 10 to 15%, so we are not in dire straits yet, and I’m not betting that it will get much worse.
I realize we have inflation and that the Federal Reserve will raise
interest rates. As rates rise, they syphon money away from equities.
Should you raise rates this year by 1%, the 10 Year Treasury would only yield probably 3%.
Putting your money into Treasuries would then cost you as inflation is currently at 7% and I don’t see that going away any time soon.
As such, stocks will remain attractive for their ability to return much more than 3%.
Some would argue though that we have come too far and the multiples are too high.
I would agree that the multiples are higher than normal, but that is due to significant earnings gains.
Apple, Tesla and Microsoft reported exceptional earnings last week. Moreover, they forecast optimistic earnings this year.
The forecast is the key.
If earnings can grow, these indexes and averages will increase.
Will it be volatile, absolutely?
We could have multiple pullbacks this year simply due all the extraneous factors like elections, pandemics and military incursions.
I will remind you that fear and greed are the two great engines for stocks.
There is so much negativity currently about almost every aspect of our lives.
It is why I enjoy watching CNBC, as it is effectively about the numbers.
That doesn’t mean that stock prices are subject to volatility due to quarterly reports.
You must have the public participating.
I am sure some will give up after a setback like this month, but many are viewing this as an opportunity for value.
I do have to draw the line at that logic.
We are far from value and still relatively close to record highs.
The one lovely thing about the stock market is that there are thousands of other choices other than the FANG stocks and some actually show as value plays.
In this market there is something for everyone, however not everyone wins.
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