Last weeks email blast started like this:
When the facts change, I change my mind. What do you do, sir?
-British economist John Maynard Keynes.
The environment that so profoundly favored the "pandemic stocks", if not over, is certainly less of a tailwind.
This week we saw the continued rotation out of work/stay at home stocks, aka pandemic stocks and Wood stocks (Named for Cathie Wood, fund manager of the ARK Invest Funds), into reopening stocks.
It is striking that so many of these stocks are down 50% or more from their 52 week highs. You wouldn't notice by looking at the S&P 500 because these stocks are not in the index. Names like Teladoc, Zoom, Peloton, and DoorDash, to name a few.
Unlike the tech stocks of late 1999, today's are much better companies in that they are not early stage venture companies with a very blurry view of what their businesses would look like in the future. Then again, back then, the future of the internet was unclear. We knew it would be important, but no one visualized how profoundly it would impact our lives today.
Stocks are a bet on the financial future of companies. Expensive stocks are a prediction of better times ahead and cheap stocks are a prediction of worse times ahead.
Sometimes stocks are too bullish on the future, making it too hard for a company to meet investor expectations. That, my friends, is the case for today's crop of high flying tech stocks. It is different than the time that preceded the tech wreck in early 2000. The difference is subtle and not so subtle at the same time.
In 2000, total wipeouts were commonplace. Technology companies were betting the farm on technologies like Digital Subscriber Loop and memory chips that were obsolete or commoditized before the companies had a chance to pivot. Today's tech companies are amazing companies, in my opinion, anyway. Their vison of the future is clear, they are much easier to understand, they are loved by their customers (who doesn't love DoorDash?), and even if they have super high P/E ratios or are losing money, they could stop reinvesting into their business and turn a profit immediately; Amazon, as an example.
As great as they are, it doesn't mean today's class of new companies can fill their valuation shoes any time in the not too distant future. Of course, if long term interest rates stay low, that at least makes their future expected earnings more valuable today. But with inflation ticking higher, that's a bet that fewer market participants are willing to take. Hence, the "pandemic stocks' have been getting slammed.
There will be bounces along the way, like yesterday and today (Thursday and Friday). Are these stocks cheap enough to be considered worthy buys now? I don't know yet. I do expect all of them to trade as a group. Investors must understand that all financial results from 2020 are suspect; from a time period that pulled demand for their services ahead by years and that's unlikely to be repeated anytime soon.
My prediction is that today's hot reopening, economically sensitive stocks will be in the same position as their "pandemic stock" brethren currently are, by early next year. You'll be hearing a lot more about that around next Labor Day.
Now, let's take it to the highlights from this week's livestreams. These highlight videos are typically between one and two minutes long.
My livestream show is called Be the Boss of Your Money. I broadcast every Monday through Thursday at 4:30 PM EST on LinkedIn, YouTube, and Facebook.
Connect with me on your preferred choice of social media platforms for daily personal finance content. Links below.
Thanks for reading and see you next week,
Mitch
