I stumbled on my "BEAR MARKET" chart from last year where the QQQ fell 23.5% from the peak last summer into year-end.... and just want to point out that with stocks, you have to deal with 23% corrections in order to earn a 10% return, because that is all the market is up from the highs last summer. Yes, it FEELS like the market is up a lot more, but it isn't. It is UP FROM THE LOWS but not much up from the highs last summer.
It's good to be rational when everyone is getting emotional and fearful about "stocks being too high".
There have been MULTIPLE bear markets over the past few years especially in various sectors in what has been a "ROLLING BEAR MARKET".
Private Equity was probably the biggest bubble and that has had a massive bear market, perhaps as large as 50% as private valuations have collapsed from ultra-high levels.
Energy stocks have been in a multi-year bear market that has wiped out 50%-75% of their valuations.
Growth stocks have trounced value stocks over the past few years and value stocks are at low valuations poised for a new bull market RELATIVE to growth stocks as investors rotate out of growth back into value.
As the year winds to an end and investors close the books on another year, I felt it was worth sharing these observations with you.
Comment
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XLE Energy sector is still off meaningfully from the peak over 5 years ago in 2014!
In this sort of Stagflation period Energy has been the place to be since about October. With growth decelerating and inflation in play (Commodities prices like Cocoa and Cattle and Pigs on the rise) Energy and the likes of XLE has been a good place to be. It will likely remain so for at least one more quarter.
bitofamacroman
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@cciappa, Remain Data Dependent!
“I knew which shifts in the economic environment caused asset classes to move around, and I knew that those relationships had remained essentially the same for hundreds of years. There were only two big forces to worry about: growth and inflation.”
-Bridgewater Founder Ray Dalio
dave.seremek
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Interesting article Tim. Have you done any work with your hidden levels on the energy and MLP markets? This sector has been batter and despised for so long I was wondering if you see any catalyst for these markets to turn around.
timwest
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@Dave.seremek, I haven't done earnings analysis on MLP's. I think there will be a wave of buying in value stocks in the new year. That is my catalyst. I always presume that rationality comes back to a market, but on its own time. The valuations of the growth stocks are so high that there isn't any room for error. People have focused on them since they were performing well despite the uncertainty we have in the world with trade wars and fears of recession, high debt levels, etc. As we enter a new year, portfolio managers are the most flexible to make changes and there is sure to be some dramatic changes starting in the new year.