Chris’ note: 2022 hasn’t been off to a great start for the markets…
Stocks are down overall. And tech stocks have fared even worse. You may feel sick from all the volatility.
Our tech expert, Jeff Brown, understands your concerns. But he’s optimistic. He says markets are overreacting. Below, he shares why… and how you can take advantage.
Last month, we saw the worst stock market plunge since the March 2020 crash.
From the start of the year to the end of January, the S&P 500 – a good stand-in for the overall stock market – dropped about 6%.
And tech had it even worse… The tech-heavy Nasdaq fell 10% in the same period. The SPDR S&P Biotech ETF (XBI) tumbled 19%.
Even the crypto market cap suffered, losing roughly 30% of its value during January’s selling.
This red has hit all our portfolios, including mine. Many readers are concerned we’re on the cusp of a crash.
So today, I’ll show you what I see in the markets… why I’m optimistic… and how you can handle this volatility…
Markets are overreacting to signals from the Fed. The U.S. central bank said it could raise interest rates three or more times this year… and will reduce the assets it buys.
Investors have been panic selling over this.
But why is tech dropping a bit more than the broader S&P 500?
The tech sector has lots of big names with inflated valuations.
I’ve been predicting for some time that certain high-flying companies – including cloud-computing company Snowflake (SNOW) and video conferencing company Zoom (ZM) – would drop to much more reasonable valuations.
It’s ridiculous for companies to trade at 80 to 100 times sales… so there must be a correction. We’re seeing that correction right now.
We have real inflation. But the Fed isn’t willing to significantly raise interest rates – especially given the November midterm elections later this year.
I think a 0.25% increase is almost certain – probably in March. Beyond that, I’m skeptical. Maybe one more rate increase.
The second half of the year, it’s too dangerous. The Fed won’t risk impacting the markets that way.
People are struggling already with cost increases on just about anything we buy.
Having the markets… the value of our savings… and our stock portfolios… decline at the same time is untenable.
I expect asset prices to fall, likely returning the labor market to a much healthier state – with higher participation.
We had record levels of resignations in 2020. One driver was that the values of people’s homes… stock portfolios… and crypto portfolios were all high.
People felt like they had a cushion and didn’t need to work.
And we’re in a strong economic environment right now.
For instance, Taiwan Semiconductor Manufacturing Company (TSM) – the largest semiconductor manufacturer in the world – increased capacity 47% this year. This wouldn’t be happening if there wasn’t broad consumer demand.
We’ll continue to see low interest rates. I believe they’ll stay below 1% in 2022. And that means money will continue to flow into stocks.
Plus, we have record levels of investment fueling both the private and public markets.
The fundamentals are all there for healthy markets. I expect that to continue this year.
If you believe the Fed will really raise interest rates by between 2% and 3%… you can sit on the sidelines and wait for things to pass.
But as great investments come back down to realistic valuations, this is a wonderful time to gain exposure at attractive prices.
I’ve put together an exclusive briefing about how to play this situation.
On Wednesday, February 16, at 8 p.m. ET, I’ll share not only on the best way to play the markets… but also what I’m doing with my own money right now. And I’ll name one of my top stocks for an easy double this year.
Go here to RSVP for this free event.
I look forward to seeing you there.
Regards,
Jeff Brown
Editor, The Bleeding Edge