Long Overdue Tech Rout
The tech darlings propelled the S&P 500 higher and higher during the decade after the Financial Crisis and again during the Covid Crash Recovery. Then came 2022 and year to date Alphabet is down 25% year to date, Microsoft is down 20%, Apple 22%, Amazon is down 35%, and Netflix is down 68% year to date! Russia’s invasion of Ukraine, China’s ill-advised lockdowns, the highest inflation in forty years, and fears that the Fed will overshoot in its attempts to quell inflation and cause a recession have conspired to drive markets down significantly. Nobody was more primed for a long overdue tech route fall than the long-favored tech leaders.
Wealth Creation Versus Money Making in Silicon Valley
With the current stock market rout and tech stock demise in mind an article on Bloomberg caught our eye. The authors argue that the tech fall is not cyclical or just due to the current market headwinds but long overdue. They write that two things have come to drive venture capitalists in recent years, greed and excessive fear of missing out on the next great thing. Markets are driven by investors searching for profits but long term wealth comes from inventing things and patiently building a business. They contend that the scales tipped too far towards short term scrabbling for money and away from building businesses. Thus, Tesla at -38%, Meta at -45%, Zoom at -44% and Shopify at -76% joined Amazon and the rest in collapsing.
The New Mantra Is That Boom Times Are Over
Warren Buffett was quoted as saying that the time to be careful is when everyone else is greedy and the time to be greedy is when everyone else is piling out of the market. As we have said, the market is not done falling. The Fed is more likely to top the scales toward a recession than achieve a soft landing. The war in Ukraine and China’s lockdowns are likely to continue which will keep supply-side inflation going. Meanwhile the “experts” have come to realize that the high-flying tech stocks were due for a correction. That was true and the mantra will continue even when it is no longer true. Here at Top Gun Options, we will spot when these stocks have bottomed out and start to provide upward trading opportunities again.
Blank Check Spacs
The oversight that is built into the IPO process has tended to weed out some of the worst emerging companies but then they invented Spacs. Special purpose acquisition companies do not need to identify their acquisition target. The excuse for this is that they need to build up equity before announcing their bid but this leaves the investor trusting that their gamble will pay off with no solid evidence of what the investment will offer. This has been the top of the curve for FOMO investing. This approach is likely to become less and less popular until people are unwilling to invest in what are, in fact, golden opportunities. In the world of options trading, we can take advantages of these excesses both on the fear and greed sides of the equation. That is because, like with the Covid crash and recovery as well as right now, we can turn on a dime and potentially profit no matter which way the market is heading. The sorts of pump and dump schemes common to the crypto space all start with a pitch to give power to the people and make the world a better place only to be followed by the innovators cashing out and leaving the investors to take their losses and lick their wounds. At Top Gun Options we always hedge our trades. Now is not the time to be trading alone in the markets. Join one of the squadrons at Top Gun Options and learn how to profit no matter which way the market is going.