Tuesday, June 14, 2022
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How Low Can Shares Go?


Each time shares fall slightly, buyers worry they may fall lots. And each time they fall lots, individuals suppose they’re going to sink even decrease.

Earlier than we discuss how a lot decrease shares can fall, let’s check out the present decline. The individuals’s index, the Dow, is down simply 14% from its peak. The S&P is down 18%. The Nasdaq misplaced 28%, and the Russell 2k fell 30%.

No one is aware of the place this ends, however I feel a primary logical step can be on the pre-pandemic highs. Simply wipe out all of the positive factors that got here from a mixture of stimulus, ZIRP, and everyone getting wealthy with none effort.

This chart reveals how far these indexes have come from their pre-pandemic highs, and the way far they would wish to fall to get again there.

Turning the chart into numbers, we will see that the Russell 2000 principally gave again all the positive factors. Up 44%, down 30%, and also you’re again to the place you began.

The Nasdaq 100 gained probably the most, and so must lose probably the most to provide all of it up. It’s already down 28%, however would wish to fall one other 19% to get again to the place it was in January 2020.

I’m at all times of the opinion that even when you already know what’s going to occur sooner or later with the economic system, you may by no means understand how the market will react to it. The pandemic being the proper instance of that dynamic. However now, I really suppose it’s fairly easy.

Right here’s the information I’d need six months from now to reply the place the market shall be; What’s inflation, and the place’s unemployment? If the fed can cool inflation with out sending the economic system right into a deep recession, then I feel shares are a screaming purchase right here*. If inflation remains to be 8% within the fall and layoffs decide up, then we’re giving all of it again, and presumably extra.

Josh and I lined this and rather more on this week’s TCAF with Jan Van Eck. Hope everyone has a pleasant weekend away from the screens.

*Full disclosure. At 37 years previous, with a multi-decade horizon, I at all times suppose shares are a screaming purchase.



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