Overly Pessimistic Market Conditions?

April – Worst Month Since 2008 Financial Crisis

As April ended, the Nasdaq logged its worst month since the 2008 financial crisis, while the S&P 500 logged its worst month since March of 2020 during the depths of the Covid pandemic. No company has been immune to the onslaught of the macroeconomic environment as many household names have seen their market capitalizations cut by 30%-60%, such as Meta (FB), Amazon (AMZN), Netflix (NFLX), Adobe (ADBE), Nvidia (NVDA) and PayPal (PYPL) to name a few. The Nasdaq and the S&P 500 finished out April at fresh lows for 2022, taking out their previous low in March, selling off 13.3% and 8.8% during April alone. The Dow Jones fared better, only selling off 4.9% for April.

There’s an array of macroeconomic headwinds that have underpinned this downturn. The Federal Reserve withdrawing monetary stimulus, continued supply chain challenges, rising rates throughout the remainder of 2022, chronic inflation, Covid-induced lockdowns in China, and the geopolitical crisis in Ukraine. As such, The Nasdaq and S&P 500 are off 23.9% and 14.3% from their all-time highs. These elements have potentially culminated in an overly pessimistic market, and great entry points are available for patient investors.

Google and Amazon Proxies

Both Amazon and Google closed out their largest monthly losses since the 2008 financial crisis. After earnings, Amazon dropped nearly 14%, leading to its largest one-day drop since 2006. This was on the heels of reporting a loss and issuing weak revenue guidance for the second quarter.

Both companies reported weaker-than-expected results, exacerbated by the macro environment and difficult pandemic comparisons. As a result, Amazon and Google have tumbled 23.8% and 18% in April, respectively. These were the biggest declines for Amazon and Google since falling 25.4% and 18.5%, respectively, in November 2008.

Back in 2008, the last time Amazon and Google saw this sort of selloff was during systemic economic fallout during the global financial crisis when financial institutions imploded and the real estate market collapsed. The 2022 set-up is vastly different, with a slew of addressable economic challenges, but systemic risk is not in the cards.

Market Entry Points

The market is offering a vast array of stocks at heavily discounted valuations. Large-cap growth companies across the board are now selling at 20%-70% off their highs, with many at 52-week lows.

Wedbush’s Dan Ives believes tech stocks are “as oversold as we have seen since 2014” and “way disconnected.”

Mark Hawtin, investment director at GAM Investments, believes some of the FAANG stocks have started to look “quite cheap” amid what had been a “sharp and fast” selloff.

Fundstrat Global Advisors’ Tom Lee believes the latest tech sell-off has provided “pretty great entry points” for long-term investors seeking to buy FAANG names. Moreover, he believes the companies are still poised to “grow double digits” despite macro worries.

Mark Mahaney at Evercore ISI urged investors to pounce on the opportunity to buy the “best and the leading global defining franchises” and “high-quality assets” while they are on sale.

King Lip at BakerAvenue Wealth Management said the bad news around FAANG stocks has been “largely priced in.”

Wharton School’s Jeremy Siegel told CNBC he’s now liking where the stock market sits. The finance professor said long-term investors should welcome the fact the S&P 500 is now down about 13.3% this year and trades at roughly 18 times forward earnings.

“If you’re a long-term investor, I think these are values you become interested in the market at.” “The S&P is 18 times... forward 12-month earnings. That’s very cheap. Ex-tech, it’s 15 to 16 in a low-interest-rate environment. Even with the Fed tightening, that looks good.”

Conclusion

2022 has been a brutal market for investors. The Nasdaq logged its worst month since the 2008 financial crisis, while the S&P 500 logged its worst month since March of 2020 during the depths of the Covid pandemic. In addition, the Federal Reserve withdrawing monetary stimulus, continued supply chain challenges, rising rates throughout the remainder of 2022, chronic inflation, Covid-induced lockdowns in China, and the geopolitical crisis in Ukraine have plagued this market thus far in 2022. These elements have potentially culminated in an overly pessimistic market and great entry points for long-term investors. The current sell-off is drawing parallels to the 2008 financial crisis during systemic economic fallout when financial institutions imploded and the real estate market collapsed. The 2022 set-up is vastly different, with a slew of addressable economic challenges, but systemic risk is not in the cards.

Noah Kiedrowski
INO.com Contributor

Disclosure: Stock Options Dad LLC is a Registered Investment Adviser (RIA) firm specializing in options-based services and education. There are no business relationships with any companies mentioned in this article. This article reflects the opinions of the RIA. Any recommendation contained in this article is subject to change at any time. No recommendation is intended to constitute an entire portfolio. The author encourages all investors to conduct their own research and due diligence prior to investing or taking any actions in options trading. Please feel free to comment and provide feedback; the author values all responses. The author is the founder and Managing Member of Stock Options Dad LLC – A Registered Investment Adviser (RIA) firm www.stockoptionsdad.com defining risk, leveraging a minimal amount of capital, and maximizing return on investment. For more engaging, short-duration options-based content, visit Stock Options Dad LLC’s YouTube channel. Please direct all inquires to [email protected]. The author holds shares of AAPL, ACN, ADBE, AMD, AMZN, ARKK, AXP, BA, BBY, C, CMG, CRM, DIA, DIS, FB, FDX, FXI, GOOGL, GS, HD, HON, IBB, INTC, IWM, JPM, MA, MS, MSFT, NKE, NVDA, PYPL, QCOM, QQQ, SBUX, SPY, SQ, TMO, and V.

One thought on “Overly Pessimistic Market Conditions?

Leave a Reply

Your email address will not be published.