Is It Time to Buy in the US Stock Market?
Due to the fact that the Dow Jones index showed the worst day in 2022 yesterday, and Nasdaq has lost about 15% over the past month and a half, more and more investors are interested in the question: “Isn't it time to start buying?”.
Outwardly, the question looks more than natural: “buy the dip” is one of the pillars of investing, and if we put “fear of missing out” on top of it, we get an extremely explosive mixture, having accepted which it is difficult for investors to resist the temptation to bribe cheaper.
Cathy Woods adds fuel to the fire by telling how cheap everything is now. Well, yes, part of the shares of her portfolio lost 70% or more. So really, it's cheaper.
But if we look deeper into the very essence of things, then we see the obvious answer to this question: “no, the time has not come yet.”
The vector of the Fed's monetary policy is just beginning to change direction (however, it is doing it quite rapidly: after the publication of the FOMC protocols on Wednesday, the markets are now expecting 6 (!) rate hikes in 2022), the remnants of fiscal and monetary steroids are quickly disappearing from the market organism, and ahead life without an injection awaits us, and on the contrary, there is reason to expect a tightening of not only monetary, but also fiscal policy (the fight against the budget deficit, tax increases and a host of other amenities, after which it will be more and more difficult for the stock market to grow, and it will become easier to fall).
And there is, after all, its geopolitics with potentially very negative outcomes. Yes, potential, but unlikely, but the mood from this is not improving on the markets yet (see the dynamics of prices for gold and other safe-haven assets).
And the question of whether the US stock market has become cheap is actually extremely rhetorical. No, it didn't come cheap. It is still very expensive. More expensive than ever in its history. It's expensive even compared to the dot-com bubble. And then, we recall, upon its collapse, the Nasdaq index lost about 80%.
So 15% is just the beginning of a long way down. Ahead is not only denial and bargaining, but also depression. So we are waiting. We are waiting for hopelessness and despondency in the market. And when they become dominant, that's when it's time to buy.
Outwardly, the question looks more than natural: “buy the dip” is one of the pillars of investing, and if we put “fear of missing out” on top of it, we get an extremely explosive mixture, having accepted which it is difficult for investors to resist the temptation to bribe cheaper.
Cathy Woods adds fuel to the fire by telling how cheap everything is now. Well, yes, part of the shares of her portfolio lost 70% or more. So really, it's cheaper.
But if we look deeper into the very essence of things, then we see the obvious answer to this question: “no, the time has not come yet.”
The vector of the Fed's monetary policy is just beginning to change direction (however, it is doing it quite rapidly: after the publication of the FOMC protocols on Wednesday, the markets are now expecting 6 (!) rate hikes in 2022), the remnants of fiscal and monetary steroids are quickly disappearing from the market organism, and ahead life without an injection awaits us, and on the contrary, there is reason to expect a tightening of not only monetary, but also fiscal policy (the fight against the budget deficit, tax increases and a host of other amenities, after which it will be more and more difficult for the stock market to grow, and it will become easier to fall).
And there is, after all, its geopolitics with potentially very negative outcomes. Yes, potential, but unlikely, but the mood from this is not improving on the markets yet (see the dynamics of prices for gold and other safe-haven assets).
And the question of whether the US stock market has become cheap is actually extremely rhetorical. No, it didn't come cheap. It is still very expensive. More expensive than ever in its history. It's expensive even compared to the dot-com bubble. And then, we recall, upon its collapse, the Nasdaq index lost about 80%.
So 15% is just the beginning of a long way down. Ahead is not only denial and bargaining, but also depression. So we are waiting. We are waiting for hopelessness and despondency in the market. And when they become dominant, that's when it's time to buy.
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