01 Apr 31st March 2025
Index Movement Last Week
| S&P500 | -1.5% |
| Nasdaq | -2.4% |
| Aussie ASX200 | +0.6% |
The market was starting to recover last week until Friday when the Fed’s preferred method of calculating inflation, the PCE (why they have several different measures is beyond me), came in at +0.4% for the month, ticking the annual rate UP to +2.8%, still a fair way above the target of 2%.
Short-term traders reacted predictably and sold stocks down. Friday was a fairly big down day at -2.0%, but interestingly, we did not see a signficant change in option prices. (we trade a lot of options here at Capital 19). That was unusual and says the option guys do not see a lot more downside from here.
Everyone is now worried about Trump’s “Liberation day” which will be Wednesday. He said he will announce a whole raft of reciprical tariffs against countries he feels are not fair with their trade to the US.
A lot of money in the markets is what we call “Fast Money”. It is professionally managed money. Those managers have quarterly targets and are trying to eek out a point here or there above the index. That means they are constantly doing things, buying and selling all day every day.
These guys are impatient. They must act to gain an advantage. Right now they are trying to be first out the door. Sell first and ask questions later. This is how financial assets become mispriced.
Watching stock prices fall is uncomfortable. Selling in these periods relieves anxiety. But it is the wrong thing to do. The right thing to do is buy.
Doing the uncomfortable thing that others can’t is how we transfer wealth from their account into ours.
The S&P500 is now down -5.1% for the year.
I like to ask – where will it end the year?
On average it ends up +9.9%. I also know that a year that ends up down 10% or more only happens with recessions.
Therefore, I very much doubt it will end the year down 10% or more. If it is already down 5% now, then I only have a 5% or so risk from here. Whereas the upside is 3 or more times this.
That sounds like the kind of risk/reward I want. So I’m buying.
What am I buying? Just about everything looks cheap so I’m spoilt for choice. Big Tech is always a good place to go shopping. Everyone was wishing they had bought Nvida last year. Well, it is now 30% down from its highs. Sounds like a bargain to me.
Or, if you want to make life easy, just buy QQQ and get exposure to all the big names in one hit.
Comparing Nasdaq to 1995
Much has been written about how similar the Nasdaq is moving as compared to the first internet boom and bust.
Last Monday was the 25th anniversary of the S&P500’s Dot Com Bubble peak on March 24th 2000. After rallying 14.6% in the month leading up to its 3/24/00 closing high, the S&P would go on to fall 25% over the next year and 49% at its low point in October 2002.
After 25 years, memories start to get hazy, and the number of engaged market participants trading back then is dwindling. The current shorthand description of the late 1990s/early 2000s is that the internet boom led to a Tech bubble that propelled the stock market sharply higher. Then the bubble burst, and the market crashed.
Many other pundits are opining on how we are currently playing out the latest tech bubble and how it will burst.
I say hogwash to that. We are nowhere near a bubble, let alone something bursting.
But, their rubbish forecasts did get me thinking about how the current move compares to the move in the 1990s. But where to start.
1995 seems a good time to me. I was in university and living from my stock market profits whilst others worked late night shifts in bars. It was also a similar time to now. Amazon and eBay were founded in 1995. I discovered Netscape as an internet browser on university computers (there is a funny story around what quickly became the most searched item on the internet as soon as Netscape was released) and Microsoft launched Windows 95, which wasn’t all that different to what we use today in truth.
Fascinating how close the two years are right?
Two important notes about this.
- Note how if this correlation continues we are just in the middle of the bull market and there is a long way to run.
- History shows us even bull markets can be volatile and become more volatile as they mature. So we are likely to see many more pullbacks, just like we have just endured, and every time some Nostradamus will be out there predicting the end of the world.
Don’t let future dips scare you out of positions. Accept they are going to happen and ride them out. Better yet, buy more when they happen.
As nice as it is to see the above similarity, in truth it is probably just a coincidence. In 1995 tech companies were just starting. Microsoft earnings were just 1.16 that year. They are now 13.00. Tech companies then we fledgling start-ups with big plans. Today they are behemoths with massive cashflow.
Back in 2000, when the party came to an end, it was because the market did what it always does and ran ahead of itself, over-valuing baby companies.
We won’t get a Tech crash today like 2000 because Tech today is very different to what Tech was in 2000.
So any comparison is meaningless.
Warning
Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.