The Long Term Investor

YEP NVDA is getting hammered beyond reason......but.....it is not likely to stop short term. Many of the other chip stocks are causing this drop across the industry.....plus the government action above.....plus the fact that chips are a commodity and chip companies have ALWAYS been very boom and bust as an industry.

 

A market being driven down by outside forces.....the constant financial media, the government, the FED, and the AI computer traders. Nothing new today.......so the markets continued their negative market direction.

Stock market news live updates: Stocks fall to start busy week of earnings, inflation data

https://finance.yahoo.com/news/stock-market-news-live-updates-october-10-2022-103354558.html

(BOLD is my opinion OR what I consider important content)

"U.S. stocks extended a downtrend on Monday to start the week lower as Wall Street steered into third-quarter earnings season and braced for a batch of inflation reports.

The technology-heavy Nasdaq Composite (^IXIC) led declines, dropping 1% to a two-year low as a set of fresh restrictions by the Biden administration on China's access to American technology sent chip stocks tanking — weighing on the broader tech sector. The S&P 500 (^GSPC) slid 0.8% and the Dow Jones Industrial Average (^DJI) shed roughly 90 points, or 0.3%.

Declines accelerated in the afternoon as investors weighed comments from JPMorgan (JPM) Chief Executive Officer Jamie Dimon indicating the U.S. economy is likely to enter a recession in six to nine months. Dimon told CNBC at a conference in London that inflation, Russia's war in Ukraine, and the impact of Federal Reserve rate hikes create a “very, very serious” mix that could result in an economic downturn, adding also that Europe is in a recession already.

Technology stocks took the brunt of Monday's selling as chip stocks plunged. Measures imposed by the U.S. to curb China's access to semiconductors aim to slow the country's technological and military advances but deal a further blow to an industry already struggling with weaker revenues as demand slows for computers, smartphones, and other electronic devices. Shares of major chipmakers including Nvidia (NVDA) and AMD (AMD) closed down 3.4% and 1.1%, respectively.

The CBOE Volatility Index (^VIX), which measures short-term expectations for market turbulence, spiked above 32. And Treasury yields extended their recent climb higher. Oil retreated after surging 17% last week, the largest jump since Russia invaded Ukraine.

The moves come after an erratic week that began with a fierce rally and concluded with a sharp sell-off that erased much of the resulting gains. The latest downslide was spurred by a strong September jobs report that confirmed to investors Federal Reserve officials are unlikely to shift away from restrictive monetary policy any time soon.

The benchmark S&P 500 index is down 23.6% year to date as of Friday’s close, but nine single trading days comprise that entire decline of 32 total points, according to Nicholas Colas of DataTrek Research.

The greater share of down days occurred around Consumer Price Index (CPI) or Federal Reserve-related events, one was prompted by Russia-Ukraine tensions, and two came on the heels of bad corporate earnings releases, he added. In the week ahead, all of those factors are expected to test the U.S. stock market.

Investors are gearing up for the flurry of bank earnings that typically mark the start to a new earnings reporting period, with results from JPMorgan (JPM), Citi (C), Wells Fargo (WFC), and Morgan Stanley (MS) all due out. Other companies set to report this week included PepsiCo (PEP) and Delta Air Lines (DAL).

Analysts are bracing for a painful earnings season as persistent inflation, higher interest rates, and geopolitical headwinds weigh on companies’ bottom lines.

“The bear market will not be over until the deteriorating fundamental picture is more fully discounted,” Morgan Stanley’s top equity strategist Mike Wilson said in a note.

Also on Wall Street’s plate is September consumer price data, one of the most pivotal reports ahead of the FOMC’s next policy-setting meeting in November. While the headline reading is expected to moderate again, all eyes will be on the “core” component of the report, which strips out the volatile food and energy categories. Economists surveyed by Bloomberg project core CPI rose to 6.5% from 6.3% over the year, per the latest estimates.

“Volatility is going to persist in equity and fixed income markets until there’s a clear indication that inflation is under control,” Peter Essele, head of portfolio management at Commonwealth Financial Network, said in a recent note.

MY COMMENT

AMAZING......what would we all do without Dimon? I mean who could have ever had the idea of a recession in 2023. This man is simply BRILLIANT.

DUH.....hello....it is a little late to worry about China and chips......we outsourced virtually ALL of our technology manufacturing to them over the past 25 years. At this point they pretty much have everything they need.

 

Definitely RED for me today. I was pleased when I saw how limited my loss was today.....compared to what I expected based on the ten stocks that I own. As to the SP500.......it was a rare PUSH today.....I ended exactly the same percentage to the down side as the average.

My shining lights today......were HON and APPL.....my ONLY green stocks for the day. One down....four to go.

 

On the topic of collecting.

I recently had a very nice painting fall into my lap. A friend of mine has a brother-in law that is a "PICKER. The brother-in-law recently ran into a private person that owns a painting that they are looking to sell. The brother-in-law knows that I collect, so he called my friend....who got hold of me to see if I was interested. It is a very nice, collectable, American Impressionistic oil on canvas, by a deceased and well listed artist, with a good auction record. It was too far away for me to see in person......but I went over the photos and the signature on the back of the painting and it all looks legit. I have access to many examples of the signature.

So.....I had the picker brother-in-law negotiate with the owner. He did a good job and got me the painting at about 1/4 of market value. He will close the deal tomorrow........if all goes well. I will send him a check and he will bring it to me when he comes here to visit my friend for Thanksgiving. Made my day....assuming it closes.....you never know till it is a done deal.

I also have plans to try to buy another oil on canvas this coming Saturday. A small piece, from an artist that I have been trying to find something to buy for a long time. Another very well listed, deceased artist, with a long auction record. It is in an auction outside of my state....so I will bid by phone. A very nice example of the artists work.....but small. I am hoping to get it at a bargain price. I think there is a good chance that it will fall between the cracks in this particular auction.

Neither of these is a major purchase...but they are both good solid pieces.

The FUN of collecting.....plus the fact that both of these paintings as well as the rest of those that I collect......do have an established market value in the auction world. So.....this "stuff" is somewhat of a hedge against inflation. The art markets have been ON FIRE ever since 2020 and everyone having to stay home from COVID.

 

I dont like how she jumps in and out of stocks....and will NOT ever buy one of her funds......but, I have to say I continue to agree with Cathy Wood that the world wide issue is STILL......DEFLATION.

Cathie Wood just wrote an open letter to the Fed accusing it of stoking ‘deflation’ and looking at the wrong economic indicators

https://finance.yahoo.com/news/cathie-wood-just-wrote-open-182102487.html

(BOLD is my opinion OR what I consider important content)

"The Federal Reserve has raised interest rates at the fastest pace since the 1980s this year in an attempt to cure America’s inflation problem. But now, many economists and business leaders are beginning to question whether the medicine (rate hikes) could be worse than the disease (inflation).

Among those is Cathie Wood, the CEO and CIO of investment firm ARK Invest. On Monday, Wood penned an open letter to Fed officials accusing them of making a “policy error” with their interest rate hikes.

She argues that Chair Jerome Powell & Co. are using “lagging indicators”—including employment and headline inflation—to justify tighter monetary policy when they should be using “leading indicators” such as commodity, used car, and home prices that tell a very different story.

Wood, who began her career on Wall Street in the 1970s and served as AllianceBernstein’s chief investment officer for over a decade, believes that the Fed’s rapid rate rates in the face of a global economic slowdown will ultimately lead to persistent deflation worldwide—which can have devastating effects on economies.

Of course, rising interest rates have also hurt ARK Invest’s tech- and growth-focused funds in 2022, leading to billions in profits for short-sellers betting against her. After years of outperformance in low interest rate environments, ARK Invest and funds like it are facing a new reality as borrowing costs for growth-focused firms soar.

But on Monday, Wood said her concern was merely deflation and the potential for a global “bust” as a result of the Fed’s policies.

“Out of concern that the Fed is making a policy error that will cause deflation, we offered some data for our ‘data-driven’ Fed to consider as it prepares for its next decision on Nov. 2,” she wrote.

ARK Invest’s case against the Fed

Wood and her team of analysts at ARK Invest believe inflation is already on its way down, and in their letter to the Fed, they put together some evidence that they believe illustrates why.

First, they detailed the drop in key commodity prices in recent months, showing that copper prices, which are an important indicator of economic strength, are now down 31% from their peak, while lumber and oil prices have dropped 74% and 25%, respectively.

Second, they noted that home prices, which soared throughout the pandemic and exacerbated inflation, posted their first monthly drop since May 2020 in July, falling 0.6%, according to the Federal Housing Finance Agency.

Inventories at major retailers like Target, Nike, and Walmart have jumped dramatically this year as well, which could lead to discounts for consumers, Wood said. To her point, discounts in key categories like electronics and toys are expected to hit all-time highs this year, according to an Adobe Analytics study released on Monday.

On top of that, after soaring throughout the pandemic, wholesale used car prices fell 3% in September, according to Manheim’s used car index.

Wood argued that all of this data shows that inflation has peaked and is beginning to fall back down toward the Fed’s 2% target rate, which means more interest rate hikes rates aren’t necessary and could lead to a global “deflationary bust.”

A deflationary threat?

While economists and consumers have been captivated by inflation’s rise over the past two years, in the decades before that, and particularly in the era after the Great Financial Crisis, deflation was the Fed’s main fear.

In August 2021, Fed Chair Jerome Powell said in a speech at an annual symposium in Jackson Hole, Wyo., that disinflationary forces including technological innovation, globalization, and “demographic factors,” have helped keep inflation at bay over the past 25 years.

“While the underlying global disinflationary factors are likely to evolve over time, there is little reason to think that they have suddenly reversed or abated,” he added. “It seems more likely that they will continue to weigh on inflation as the pandemic passes into history.”

This year, however, Powell has taken a new tone, arguing that price stability is “unconditional” and that he will continue fighting inflation even if there is some “pain” for Americans.

Wood believes these policies aren’t necessary, and that the deflationary impact of technological innovation will ultimately slay inflation with or without the Fed. But it’s important to note that the CEO has something to gain if the Fed reverses course.

The ARK’s saving grace

Rising interest rates have dramatically impacted the growth-focused tech firms that ARK Invest’s funds favor in 2022.

The ARK Innovation ETF, for example, rose 152% in 2020 when low interest rates and stimulus spending helped fuel tech stocks to new heights. But this year, with the Fed tightening financial conditions, Wood’s flagship fund is down over 62%.

Many of ARK Invest’s innovation-focused tech investments that rely on debt-fueled growth to justify high stock prices are seeing their margins squeezed as borrowing costs soar. And at the same time, there are far fewer speculative tech investors in the markets these days, with predictions of an impending recession coming in day after day.

Tech-focused funds have struggled this year as a result, and a Fed pivot would definitely help turn things around.

But despite CEOs like Cathie Wood and Starwood Property’s Barry Sternlicht calling for the Fed to pause its rate hikes or even pivot to rate cuts, Fed officials have made it clear in recent weeks that they aren’t changing their plans anytime soon.

“You no doubt are aware of considerable speculation already that the Fed could begin lowering rates in 2023 if economic activity slows and the rate of inflation starts to fall. I would say: not so fast,” Atlanta Federal Reserve president Raphael Bostic said last week."

MY COMMENT

I am in favor of normalizing rates....but do NOT agree with the actions of the FED. I continue to believe that the long term default economic issue is DEFLATION. Till this inflation caused by the pandemic issues.......we were in a world wide deflationary environment since about 2008/2009.

 

Yeah.....I think the letter is just window dressing or a PR move. She loves to generate media attention. But...I do agree with her.

 

I had to take my car in today for brakes so I missed the open.....not that it matters.

Looks like kind of a VAGUE mixed market at the moment.

 

You never know what you will get year to year in the markets......it is ONLY over the longer term that you get the historic INDEX average.....depending on what you own and how you invest.

The stock market rarely produces average returns: Morning Brief

https://finance.yahoo.com/news/the-...-average-returns-morning-brief-100033582.html

(BOLD is my opinion OR what I consider important content)

"Wall Street firms have begun publishing their 2023 forecasts for the S&P 500.

Targets published by seven top equity strategists range from 3,800 to 4,200, implying returns of 4% to 15% from current levels.

We’ll only know how accurate these calls are in hindsight. We do, however, know that last year’s 2022 forecasts have proven very inaccurate so far.

As of Dec. 5, 2021, 14 strategists followed by TKer.co had 2022 year-end S&P 500 targets ranging from 4,400 to 5,300. At the time, the implied one-year returns ranged from -3% to +17%.

There’s a lot to be said about making these short-term forecasts.

One thing is that they often gravitate around a midpoint expectation for about 8% to 10% returns.

And why not? Historically, the average annual return on the S&P is about 8% to 10%.

Unfortunately, 8% to 10% returns aren’t as common as you might think.

Check out these two charts published last week from A Wealth of Common Sense. They chart the annual returns of the S&P 500 since 1977.


S&P 500 Annual Returns

S&P 500 Annual Returns 2000-2022
As you can see, 8% to 10% returns are not common at all. This is an important truth about the stock market.

The 8% to 10% average comes from many years of outsized returns, many years of weak or negative returns, and a few years of average returns.

On this matter, I often think about this quote legendary investor Peter Lynch gave at a speech on October 7, 1994:

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs… Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go. So, the market ought to double in the next eight or nine years. They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That's all there is to it.

When he says “the market,” Lynch is referring the Dow Jones Industrial Average, which closed at 3,797 on the day he gave the talk. If you compound that by an 8% growth rate over 28 years, which would get you to present day, then you get 32,757. The Dow closed Monday at 29,203, which is pretty darn close.

If you did this exercise with the S&P 500, which closed at 455 on the day of Lynch’s talk, then you’d get 3,925 assuming an 8% compound annual growth rate. The S&P closed Monday at 3,612.

Again, if you look at the charts above, you don’t see many years with 8% returns. But over time, you get an average return of nearly 8%.

While your long-term investment plan may assume average returns in the stock market, it certainly shouldn’t assume average returns every year."

MY COMMENT

YEP.....to get that long term total return in the SP500......you will have to sit through some very negative years and some positive years. It is NOT a smooth ride. One thing is sure.....to get that average you need to be invested over the long term and exposed to the markets.

 

I mentioned before hearing people talk about a lost decade following 2008/2009....yet I would look at my total returns and I could not see any lost decade.

There Is Zero Precedent For a 'Lost Decade' In the Stock Market

https://www.realclearmarkets.com/ar...a_lost_decade_in_the_stock_market_858119.html

(BOLD is my opinion OR what I consider important content)

"Is a lost decade looming? A growing chorus of commentators claim the last nine months’ morass portends many years of struggle, arguing stocks are doomed to a long, lackluster stretch of nothingness—necessitating radical investment changes. Nonsense. No one can know what the next decade holds even wildly. I surely don’t. But, I do know “lost decade” fears are ever present-common around bear market lows and early bull markets. They say more about sentiment than what 10 years of tomorrows hold. Let me detail that for you.

Lost decade fears stem from the wrongheaded idea current problems are too big and bad to overcome—extrapolating 2022’s poor returns years forward. This kind of “new normal” thinking arises frequently around market bottoms, after bear markets crush sentiment. Scarred investors claim current problems are intractable—a sea change dragging stocks down…keeping them there.

It is happening now, with 2022’s myriad fears fanning lost decade forecasts. Most argue elevated inflation and rising interest rates will be longer term, eroding stocks’ attractiveness. Maybe! But this merely extrapolates current conditions in a linear manner. It doesn’t account for potential shifts or markets’ and economies’ inherent cyclicality and creativity. It also assumes 10-year rates at 3%, 4%, even 5% prevented past bull markets. Not so! Consider the 1980s and 1990s. Stocks soared both decades, despite 10-year yields averaging 10.6% and 6.7%, respectively. Those decades saw annualized 17.5% and 18.2% S&P 500 returns, respectively. People forget—the “Pessimism of Disbelief”—which I detailed here in June—obscure views of the present and far-future.

Investing is a probabilities business. Flat decade forecasts disregard this, using weak evidence to argue for something wildly improbable. Consider: Since good S&P 500 data begin in 1925, rolling 10-year price returns were only “flat” (lower than 15% cumulative return) about 18% of that time. Just 12% of price returns were negative. Those periods also cluster, including a longer flat-to-down period amid the Great Depression and WWII. From 1936 to 1948, nearly 60% of rolling 10-year periods were flat. Other lost decades? 2000 – 2009–and a few in the 1970s, too.

That sounds bad! But no diversified equity investor earns price return only. Total returns, which include dividends, paint a truer picture. Since 1925, rolling 10-year total returns were flat or negative just 7% of the time. 7%! Dividends cut the Depression’s flat-to-down periods in half! Most of the 1970s’ occurrences vanish outside the depths of 1973 – 1974’s bear market.

Simply said, there is no precedent—zero, zilch—for stocks falling and remaining “flat” for 10 years straight. A pure, L-shaped decade has never happened. After 1929 – 1932’s monster bear market, stocks soared 324% in price-only terms through 1937. Nor was 2000 – 2009 L-shaped either—it was a flat decade by happenstance, based on one bull market peaking in the decade’s first year and a bear market bottoming in its last. Calling that a “lost decade” glosses over the bull market in the middle. That episode is also instructive: No one predicted a flat decade in 2000—most said just the opposite! Then they said, “It’s the internet, stupid.” “New normal” and “lost decade” chatter didn’t begin until after the global financial crisis. Meanwhile, 2009’s dire predictions fell very, very flat. The S&P 500 bull market ran from 2009 – 2020, delivering 528.9% returns. Some lost decade!

Why can’t anyone forecast a decade out? The effort overlooks markets’ nature. Stocks move on supply and demand, like any asset. Far-ahead forecasts typically focus exclusively on demand, ignoring stocks’ more crucial long-term driver: supply. IPOs, bankruptcies, buybacks, mergers—all these influence supply, and hinge on regulatory shifts, future sentiment and myriad other factors. Those aren’t predictable far in advance—I’ve never seen anyone even try. That is a key reason stocks move on factors mainly impacting businesses over the next 3-30 months. Anything beyond is too murky. Maybe the next decade is subpar—but you can’t know it now—or how. History shows the journey won’t be “flat” anyway. Hence, opportunities will abound.

So tune out dire-decade doomism. Bear markets end in Ws or Vs—not Ls. No matter which, the upswing starts a new bull market, and the return to prior highs generally doesn’t take terribly long. The median bull markets to reach and start surpassing pre-bear market highs is 9.8 months. Yes, there is big variance between the fastest and slowest recoveries. And, yes, perhaps this bear has far farther to fall. But when stocks have historically pierced -25% from a bull market high—as they did in late September—returns were positive a year later 6 of 9 times. Two of those down periods were 1929 and 1937. The other was 2008. Today looks nothing like those.

Counterintuitively, lost decade fears are bullish—they demonstrate excessive and irrational pessimism. People always see bear markets as generational, lasting shifts for the worse. They aren’t. They are recurrent, cyclical and corrective. Yet cataclysmic proclamations are common around their lows, portending positive surprises that fuel new bull markets. Look to that now and forget any unforeseeable “far future” nonsense."

MY COMMENT

I totally agree with the above......plus....my 50+ years of investing the way I do has shown me that it is all about......PROBABILITY. I will take the historic probabilities of the stock markets ALL DAY LONG.

I also do consider it a strong POSITIVE.....the more negative people become. Pessimism is always the worst before the markets turn.

I continue to say we are at a soft bottom with perhaps 10% more to lose. I have not looked at my account today....but....I am probably back at about my low point for the year. This would be the THIRD time this year to hit that point.

Looking at the SP500 we appear to be just slightly above our one year and year to date LOW. That LOW occurred on September 30.

 

Having just looked......I see that I have a nice small GAIN in my account today. I am being propped up by my NON-TECH names for the most part today.......NKE, COST, HD, HON, and GOOOGL.

Looks good to me......I will take it.

 

The average 30 year mortgage is now over 7%......7.125% to be exact. That sounds about NORMAL to me.....over much of my lifetime. Here are the current conditions for home buyers. the BAD NEWS......this is for a normal 30 year loan.....in many parts of the country the typical buyer will be looking at higher JUMBO rates.

It’s bad enough mortgage rates are over 7% – now it’s harder to qualify for a home loan

https://www.cnbc.com/2022/10/11/mortgage-rate-is-over-7percent-harder-to-qualify-for-loan.html

 

The markets are FIGHTING to become positive today. This could be one reason for the turn to the positive mid morning today.

Inflation expectations ease, while spending outlook tumbles, Fed consumer survey shows

https://www.cnbc.com/2022/10/11/con...pending-expectations-show-sharp-decline-.html

"Key Points

• Consumers expect the inflation rate a year from now to be 5.4%, the lowest number in a year and a decline from 5.75% in August, according to a New York Fed survey.
• Respondents also indicated that they see household spending growth of 6%. That’s the lowest level since January and the biggest one-month decline ever."

See article for more detail.

It is a WASTE OF BREATH for me to say it.....but I continue to think that the 2% inflation target of the FED is simply RIDICULOUS. That is bordering on deflation. A more RATIONAL target would be 3-4%....for an American economy that is humming along. That is what the target used to be back in the old days in the 1980's and beyond.

 

I will NOW stop posting for a while since......ALL....the averages are in the GREEN.