Down market . . .

[Broozer]

What has caused the erosion of stock prices in recent weeks? Is it just interest rates?

[retiredat48]

SEASONAL PATTERN.

Here's the deal, from my post a while back:

------------------------------
I see the market as fairly normal.


Fairly normal means strong seasonal patterns exist entering and exiting Q4. That pattern is typically(posted about it often):


"Stocks have a very poor September, followed by a bottom in week 1 or 2 in October. Then stocks recover, and November and December are strong upward months. Tax loss selling effects end about 20 December."


So here is the most likely market direction I see for Q4:



"Stocks have a very poor September, followed by a bottom in week 1 or 2 in October. Then stocks recover, and November and December are strong upward months. Tax loss selling effects end about 20 December."


It's not rocket science.


I will be doing some repositioning shortly, and adding some monies now sitting in Money Market funds, into selected stock funds.

-------------------------------------------------------

Wow.  So far, right on track!

R48

[Norbert]

Oct 3, 2023 14:27:28 GMT Broozer said:

What has caused the erosion of stock prices in recent weeks? Is it just interest rates?

I'll take a crack at it.

Yes, it's mainly about the normalization of interest rates.  A 5% MM yield is attractive and we can now earn positive real returns in bonds.  A year or two ago we justified high S&P 500 prices by saying that the dividends were higher than bond yields. Not any more.

Combined with continued high stock valuations, this is not an ideal situation for equities. There are attractive alternative investments. So, prices are correcting in a "normal" way, to use R48's word.

However, there's also whiff of fear because real estate prices soared on the heels of low rates. Mortgage rates have popped, so buyers are less plentiful.  Declining RE prices make investors feel poorer.  A risk-free 5% sounds pretty good!

Just returned from San Francisco and saw a depleted downtown, with a massive vacancy rate in for both business and retail sectors.  Some of that is the post-Covid work-from-home initiative and some of that is the high crime rates inspired by a progressive mayor's soft-on-crime attitude.  (Shoplifting is rarely prosecuted now.)  So, major stores like Walgreens, Nordstrom, and Target are closing stores, which means disappearing jobs in poorer areas.  Commercial real estate failures might compromise certain banks.

However, there may be more at play.  There's a sense that government debt is out of control and may have reached an upper limit. No one one knows if that's really true, but perceptions matter.  If the government is forced to refrain from Keynesian tactics during the next recession, liquidity will dry up even more.  Stocks love liquidity.

Plus the US encouraged Ukraine to refuse a deal with Russia in 2021-22, and now the war is looking like a stalemate at best.  Russia sees stopping the NATO expansion as existential and will not accept failure.  But, Ukraine won't accept anything less than a Russian withdrawal.  How's this going to end?  I'm pessimistic and see escalation risk.  Maybe the markets do too?  I note that India, China, and Africa seem to be turning away from the US.  Russia is winning the propaganda war.  People don't like the US throwing around its weight, focused on its own security and ignoring other nations' security. 

Predictions are difficult, particularly about the future. But it's not obvious what will inspire the next rally.  Stocks might have to get cheaper first, maybe quite a bit cheaper.  But, I'm given to paranoia and R48 might be correct about the seasonality thing.  By December everything could look different.  Me, I think it's more than seasonality.

That's my 2.

N.

[Broozer]

Thanks for your thoughts guys.