After Meltdown, Tech-Bottom Signals Have Yet to Scream ‘Buy Now’

Calling the bottom in the tech-sector meltdown isn’t easy, even after a $5.5 trillion wipe-out, yet there are some signals giving investors hope.

Tech stocks have been hammered this year as rising interest rates, slowing economic growth and soaring inflation form a perfect storm of negative catalysts. That’s hurt everyone from retail investors who loaded up on Cathie Wood’s Ark Investment exchange-traded funds last year to deep-pocketed asset managers who invested in Apple Inc.

The price charts paint a dire picture: The tech-heavy Nasdaq 100 Index just capped its seventh straight week of declines, the longest such streak since 2011, and has shed nearly 30% from its peak last year. The U.S. trillion-dollar quartet of Apple, Microsoft Corp., Amazon.com Inc. and Alphabet Inc. has led the charge lower in the latest leg of this selloff.

Yet a number of investors are starting to see a light at the end of the tunnel. The Nasdaq 100 now trades for about 20 times its estimated forward earnings — in-line with long-term averages — as frothy valuations built up during the pandemic recede. The Philadelphia Semiconductor Index, home to chipmakers including Intel Corp. and ASML Holding NV, trades at about 15 times expected earnings for the next 12 months, well below a peak of 24 hit in early 2021.

“It’s hard to be patient when there’s been so much carnage. But the pain should end, possibly soon,” said Jordan Stuart, client portfolio manager at Federated Hermes. “Our recommendation is growth investors need to be ready.”

Last week, Jefferies strategists turned bullish on the information-technology sector, saying in a note that a “dash for cash” by investors discounting extreme interest-rate scenarios “has been more than reflected in the compression of market multiples.”

Source: After Meltdown, Tech-Bottom Signals Have Yet to Scream ‘Buy Now’

The stock market, as measured by the S&P 500 Index SPX, +0.01%, got off to a rocky start this week. But that produced enough of an oversold condition that buyers stepped in and have taken the benchmark index all the way back to the top of its trading range, at 4700 points.

The lower end of the trading range is 4500 (see the accompanying chart, below), although there is also support at this week’s lows, 4530. SPX has tried many times to break out over 4705 and hold those gains but has been unable to do so. But market internals have improved somewhat, so maybe this time it will do so.

The extreme volatility that has been on display within the trading range has pushed the 20-day historical volatility (HV20) of SPX up to a historically large 21%. That is a sell signal in itself. Only if that volatility begins to retreat (falls below 15%, say), will this sell signal be terminated.

Equity-only put-call ratios have continued to rise — until yesterday (December 22nd), when they plateaued a bit. However, our computer analysis programs are still “saying” that these ratios are on a sell signal. Obviously, they are quite high on their charts, meaning they are oversold.

So a potential buy signal exists, but we need to see them begin to trend lower (and for the computer analysis programs to agree) before we can say that they are on buy signals.

Market breadth was abysmal when the market was going down. But it has recovered strongly with the rally since Monday, and now both breadth oscillators are on buy signals. We had a contingent bull spread recommendation in place and those contingencies have been fulfilled.

These oscillators had reached extreme oversold conditions in late November and early December — extremes not seen since the pandemic selling of March 2020. That sets the stage for a strong buy signal, and it is usually the second such one that is the “true” buy signal. This current signal is that second one, so this is promising for the bulls. For the record, the cumulative breadth indicators are nowhere near their old highs.

New 52-week lows have continued to outnumber new 52-week highs, even with the market rallying back this week. This situation could reverse in the coming week, but so far it has not. That means this indicator is still clinging to a sell signal. In a broad sense, it is not a constructive thing for SPX to be right at its highs, yet there are more stocks making new 52-week lows than making new 52-week highs.

The implied volatility indicators are mostly bullish, but not totally. First, the VIX “spike peak” buy signal remains in effect. Action was wild in VIX, though, as it exploded to above 27, then closed below 23 on one day (Monday, December 20th).

It is the trend of VIX that represents something of a problem. That is, VIX has continued to close above its 200-day moving average, which is just below 19 and going sideways. VIX has nearly fallen to that level for the first time in a month (note the box on the accompanying VIX chart). A clear close below that 200-day MA will be another bullish sign for stocks.

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Buffett’s Berkshire Buys Citigroup and Several other Stocks, Slashes Verizon

May 16 (Reuters) – Berkshire Hathaway Inc on Monday said it added new investments in Citigroup Inc and several other companies in the first quarter, as Warren Buffett’s conglomerate took advantage of volatile stock markets to invest $51.1 billion that had largely been sitting in cash.

In a regulatory filing describing its U.S.-listed equity investments as of March 31, Berkshire reported new stakes in Ally Financial Inc, chemicals and specialty materials company Celanese Corp, insurance holding company Markel Corp, drug distributor McKesson Corp and Paramount Global, formerly known as ViacomCBS.

Omaha, Nebraska-based Berkshire said it sold nearly all of an $8.3 billion stake in Verizon Communications Inc that it had amassed in late 2020.

Berkshire also finally exited Wells Fargo & Co, a 33-year-old investment that Buffett soured on after finding it too slow to address revelations that employees had mistreated customers, including by opening unwanted accounts.

Buffett’s company ended March with $106.3 billion of cash and equivalents, down from a near-record $146.7 billion three months earlier, largely reflecting the new investments.

These included previously disclosed stakes in Chevron Corp and Occidental Petroleum Corp, computer and printer maker HP Inc and video game maker Activision Blizzard Inc, the latter an arbitrage bet.

Stock sales totaled $9.7 billion, and also included drugmakers AbbVie Inc and Bristol-Myers Squibb Co .

Citigroup, where Berkshire invested nearly $3 billion, has embarked on a multiyear plan to boost performance and a share price that in recent years has lagged larger rivals JPMorgan Chase & Co and Bank of America Corp, the latter a major Berkshire investment.

Some investors have described Markel as a small-scale version of Berkshire, and Buffett in March committed $11.6 billion to buy another insurance holding company fitting that description, Alleghany Corp.

Berkshire also owns several companies specializing in Celanese’s sectors. Monday’s filing does not say which investments were made by Buffett and his portfolio managers Todd Combs and Ted Weschler.

Most large Berkshire investments are Buffett’s. Stock prices often rise after Berkshire reveals new stakes because investors view the investments as a stamp of approval.

At Berkshire’s annual meeting on April 30, Buffett said investors were too focused on flashy stocks, causing markets at times to resemble a casino, allowing him to focus on stocks that Berkshire understands and which add value.

Analysts have also viewed Chevron and Occidental as a way for Berkshire to benefit from rising oil prices following Russia’s invasion of Ukraine.

“I wish the rest of the world worked as well as our big oil companies,” Berkshire Vice Chairman Charlie Munger said at the annual meeting.

More than three-fourths of Berkshire’s $390.5 billion equity portfolio on March 31 was in American Express Co, Apple Inc, Bank of America, Chevron, Coca-Cola Co and Kraft Heinz Co. Berkshire owned 26.6% of Kraft Heinz. (Reporting by Jonathan Stempel in New York; Editing by Chris Reese, Bernard Orr).

By Jonathan Stempel

Source: UPDATE 1-Buffett’s Berkshire buys Citigroup and several other stocks, slashes Verizon

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Will Inflation And The Stock Market Conspire To Kill The 4% Rule?

1-23-1

A recent WSJ headline sent chills down the backs of every retiree—”Cut Your Retirement Spending Now, Says Creator of the 4% Rule.”

In the article, the WSJ quoted the father of the 4% rule, William Bengen, as saying that “there’s no precedent for today’s conditions.” Stock and bond prices are still at record highs. Mix in a reference to 8.5% inflation, and the WSJ starts to sound like an insurance salesperson pitching indexed annuities.

So are things really that bad? And do retirees need to rethink the 4% Rule? I don’t think so, and here’s why.

The 4% Rule is Now the 4.4% Rule

In the article, Mr. Bengen said he believes a safe initial withdrawal rate is 4.4%. Yes, that’s an increase from his initial findings in his 1994 paper.

In his 1994 paper, he assumed retirees invested in the S&P 500 and intermediate Treasury bonds. That’s it. Since then he expanded the asset classes to include mid-cap, small-cap, micro-cap and international stocks. This diversification caused him to increase the safe withdrawal rate from 4% to 4.7%. Because of the unprecedented conditions noted above, however, new retirees might want to start at 4.4%, he said.

As far as I can tell, the 4.4% rate is not based on data. Still, it represents a 10% increase, not decrease, from his initial 4% rule. That doesn’t sound so bad.

“The combination of 8.5% inflation with high stock and bond market valuations make it difficult to forecast whether the standard playbook will work for recent retirees,” said Bengen. He’s even gone so far as put 70% of his personal portfolio in cash. When the father of the 4% rule cashes out, shouldn’t we?

I don’t think so. For starters, it’s important to understand how Bengen developed the 4% Rule. He examined 50-year retirement periods dating back to 1926. For each, he identified the highest withdrawal rate one could take in the first year of retirement, adjusted for inflation in subsequent years, without running out of money for at least 30 years.

As you might imagine, every year had a different initial withdrawal rate. Some years the starting rate was twice what it was in others. Here’s the key point. He didn’t average all of these initial withdrawal rates to come up with the 4% rule. He took the absolute worst year—1968.

Here’s more on how the 4% Rule works.

What does this mean? It means the 4% Rule has survived the stock market crash of 1929, the Great Depression, WWII, the Korean War, the Vietnam War, the inflation of the 1970s and early 1908s, the 1987 market crash, 9/11, the Great Recession and Covid-19.

Stock Prices

No matter how difficult past times have been, current conditions feel awful in ways that history never can. One need look no further than Robert Shiller’s CAPE (cyclically adjusted price-to-earnings ratio) of the S&P 500 to raise concerns. It stands at roughly twice its average and at historic highs. It’s only been higher once, and that was during the tech bubble.

Yet as “unprecedented” as this may seem, it’s not for two reasons. First, most portfolios don’t have the same PE as the S&P 500, even if measured using CAPE. Add in mid-cap, small-cap and international stocks, and the PE comes down significantly.

Second, and more important, the CAPE of the S&P 500 would fall to average with a 50% decline in the S&P 500. This wouldn’t be fun, but it wouldn’t be unprecedented, either.

As noted above, the market lost 90% to kick off the Great Depression. And going back to the tech bubble, the market lost 9%, 12% and 22% from 2000 to 2002. That’s not quite a 50% total loss, but close. And from peak to trough during the Great Recession (2007-2009), the market lost more than 50%. The 4% Rule survived like a cockroach.

Bond Prices and Inflation

Bond yields were at historic lows. I say “were” because that’s no longer the case. The roughly 3% yield on the 10-year Treasury is still below average, but there are plenty of years dating back to the 1800s when they were lower. And when Bengen published his 1994 paper, TIPS were three years away and the first I bond was still four years away. So at least now we can keep up with inflation.

Here’s the key. The 4% Rule has survived Treasury yields as low as 1 to 2%. It also survived inflation of more than 13% and a decade of inflation at 6% or higher. And like the Energizer Bunny, it keeps going and going (or ticking for you Timex fans).

Final Thoughts

Some year might come along that is worse than 1968 for new retirees. Maybe 2022 will turn out to be a worse time to retiree since the late 60s. Perhaps in 30 years we’ll know that for 2022, the initial safe withdrawal rate was 4.2% instead of 4.4%.

But can we really predict that based on current conditions, when the 4% rule has survived much worse? I don’t think so.

Rob is a Contributing Editor for Forbes Advisor, host of the Financial Freedom Show, and the author of Retire Before Mom and Dad–The Simple Numbers Behind a Lifetime of

Source: Will Inflation And The Stock Market Conspire To Kill The 4% Rule?

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The Worst Of The Stock Market Crash May Be Yet To Come

Though stronger than expected, the rate of inflation in April slowed for the first time in eight months, but experts still aren’t sure how long it will take for prices to return to normal levels—even if the worst has finally passed.

Overall prices rose 0.3% from March—higher than the 0.2% economists were expecting but much lower than the previous month’s increase of 1.2%, according to data released by the Labor Department on Wednesday.

On a yearly basis, prices jumped 8.3% last month, falling from 8.5% in March but exceeding expectations calling for an increase of 8.1%; the slowdown marked the first month-over-month decline since August.

The overall increase was the result of broad upticks across shelter, food, airline fares and new vehicle prices, while a month-over-month decline of 6.1% in long-surging gasoline prices (which spiked 18% in March) helped offset the gains, the government said.

Core inflation, which excludes volatile food and energy prices, rose 0.6% in April after a 0.3% uptick in March—a “seriously disappointing” jump given expectations for a 0.4% increase, Pantheon Macroeconomics chief economist Ian Shepherdson said in an email Wednesday, pointing out a 1.1% increase in new vehicle prices was “significantly bigger” than in recent months.

In a weekend note to clients, Goldman Sachs economist Ronnie Walker cautioned the inflation outlook remains “highly uncertain” due to lingering supply chains, red-hot wage growth and still-surging commodity priceswith gas prices, for example, jumping to record highs on Tuesday.

The economist expects shelter inflation will remain firm amid the tightest housing market in decades, while price spikes driven by supply chain constraints will “fall sharply” as bottlenecks ease, particularly in used cars and consumer electronics, which saw prices continue to fall in April.

“The slight moderation in inflation will likely provide some needed boost in consumer confidence,” Jeffrey Roach, chief economist for LPL Financial, said in emailed comments Wednesday. “Investors and policy makers both know inflation will likely stay above target for a while but both will focus on the direction of the change.”Stocks fell immediate after the Wednesday CPI report, with S&P 500 futures falling 1.1% by 9:05 a.m. ET, while Nasdaq futures plunged 1.8%.

The reopening economy and fiscal stimulus helped fuel one of the strongest starts to a bull market ever during the pandemic, but stocks have struggled this year as the Fed raises rates and unwinds economic support to ease inflation.

After rising 27% in 2021, the S&P has fallen 17% this year, while the Nasdaq has flirted with bear-market territory, plummeting as much as 26%. “A repricing of stocks is currently taking place due to rising interest rates, which mathematically makes stocks less attractive,” explains David Bahnsen, chief investment officer of $3.6 billion advisory The Bahnsen Group.

I’m a senior reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at

Source: The Worst Of The Stock Market Crash May Be Yet To Come, According To Wall Street’s ‘Fear Gauge’ Signal

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Technicals Point To More Stock Market Carnage Ahead

The S&P 500 index cratered 3.6% Thursday, erasing Wednesday afternoon’s gains following this week’s Federal Reserve meeting and needing a last-minute bump to close ahead of last Friday’s lowest point since May 2021.

When Federal Reserve chair Jerome Powell took the possibility of raising interest rates by 75 basis points at once off the table, investors celebrated by pushing the S&P 500 3% higher on Wednesday. But the reality of the ongoing rate-tightening cycle to address 40-year highs in inflation sunk in a day later to take off the sugar high.

Rising interest rates have contributed to a disastrous start to the year for stocks. The S&P 500 is down 13.5% from its January 3 peak, and the tech-heavy Nasdaq Composite is down 22% after a 5% crash Thursday, fully in Bear Market territory.

For investors eagerly looking for an entry point, most strategists caution that there are still some storm clouds ahead. Powell said inflation is “much too high” at Wednesday’s meeting while announcing an interest rate hike of 50 basis points and said similar increases would be considered at its next couple of meetings.

“The one thing you learn in a bear market is that forecasting the bottom is like catching a falling pitchfork. It’s a spectacular feat if you pull it off, but it’s painful and dangerous to try,” says Jim Stack, founder and president of InvesTech Research, of Whitefish, Montana. “One of the dangers in anticipating a bottom lies an understanding that the showdown between Fed policy and inflation is just beginning.”

Sam Stovall, chief investment strategist at CFRA, called Thursday a “capitulation day” and said two technical indicators–the head and shoulders pattern and Fibonacci retracement–each suggest the S&P 500 could fall to 3,800 before it hits a bottom. That would be another 8.4% down from its current level at 4,147 and 20.8% down from its peak, broaching bear market levels.

Other experts agree that investors shouldn’t necessarily expect an imminent and sustained rebound.“We’re not expecting a runaway market to the upside where we’d have a strong bottoming process and then we rebound from there,” says Yung-Yu Ma, chief investment strategist at BMO Capital Markets.

“Even when some of these things turn the corner and the market stabilizes, it’s still a market that takes a step forward and a step back and just tries to grind its way throughout the rest of the year.”

One contrarian indicator leaning bullish is the American Association of Individual Investor’s weekly Investor Sentiment Survey, which surveys its members about the direction of stocks over the next six months. The most recent survey released May 5 reported 52.9% bearish respondents versus 26.9% bullish.

The historical average for bearish sentiment is 30.5%, and according to the AAII, “Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P 500.”

Stocks are likely to remain volatile as the Fed continues to combat inflation, and the S&P 500 has already lost at least 1% on 26 trading days so far this year, more than the number of such days in all of 2021. The five biggest daily declines since 2020 have all taken place in the last two months.

Amazon, Netflix and Tesla were some of the day’s notable underperformers, each losing more than 7% while Tesla founder Elon Musk’s net worth plunged more than $18 billion. Netflix is among four S&P 500 companies that has lost more than half of their value this year, along with Paypal, Etsy and Invisalign maker Align Technologies.

“We are grossly oversold, and will continue to bounce along the bottom,” Louis Navellier, chairman and founder of wealth management firm Navellier, said. “While bad stocks bounce like rocks, good stocks bounce like fresh tennis balls.”

I’m a reporter on Forbes’ money team covering the wealthiest people and most influential firms on Wall Street. I’ve reported on the world’s billionaires for Forbes’ wealth team

Source: Technicals Point To More Stock Market Carnage Ahead

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