Are we witnessing a regime change?
We are witnessing buy the dips (BTD) turn into sell the rips (STR). This is one of my most important notes so far to my public community.
Note: In my public emails, I offer powerful broad guidance to advance your thinking. Inside my investment community, I discuss specific levels and actionable strategy to help you become an outstanding equity analyst. In addition, inside our community, I provide career guidance for people interested in working in finance given the uncertain macroeconomic environment.
Dear Friends and Public Investment Community,
I recently did a public poll on my Youtube Community Tab asking our audience to use the wisdom of crowds to assess the potential upcoming bottom in the S&P 500.
In this quick note to the community, I will:
Discuss recent poll data run on my Community Tab on Youtube (statistically significant)
Help you understand the current market landscape
And once again, provide you a quick update of what we have been doing inside our investment community where we provide timely market strategy during this chaotic period of time.
Once again, as a content creator on Youtube and serving as a Strategist inside my Patreon Investment Community where our members can message me 1:1 directly should they have questions about markets/careers, I have deep access to a broad range of sentiment from young investors to older investors.
First, take a moment to observe this poll’s data where I asked our audience to provide their opinion on where they believe the S&P 500 will find its footing.
Now allow me to share my opinion.
This poll suggests that retail investors are HEAVILY divided on where the S&P 500 is like to bottom.
In simpler terms, this poll suggests that retail investors currently do not share a consensus on the outlook of the market. We have a market where participants think the following scenarios can play out:
The market has bottomed, and we go back up immediately from here
The market will be choppy, and we’ve turned into a sideways market
The market has significant downside where cash is the only safe reserve.
The market’s opinion is currently very fragmented, and that means that it is STILL TOO EARLY to form a bold opinion on where precisely markets go next.
Of course, I am actively following all potential inter-market related data points for our community, but as of this very moment, the objective & statistical answer is that the market is very divided and uncertain.
Opportunities will be emerging soon, but being nimble and strategic is the name of the game in this environment.
In a poll where I tried to assess the bigger picture of the real economy (outside of the stock market) via job security, we see that only about 35% of participants feel strong job security and a significant percentage are either cautiously optimistic or feeling neutral at best.
Not exactly a sign of economic strength.
My poll results are consistent with the following headwinds that we all face today in 2022 (just a sample list):
Higher rent prices across the board for housing, as discussed in my latest video
Rising mortgage rates that truly make it restrictive for first-time home owners to enter the market (not to mention competing with all-cash buyers)
Rising interest rates that impact everything from our auto loans, credit card rates, and even incoming student loan debt (where college tuition is now exceptionally expensive).
Food prices and daily consumer staples creeping up due to inflation even at some of our favorite shopping destinations like Walmart and Costco
While these two polls are only one data point in the way I assess the entire landscape, it appears that the stock market is now converging to the economic realities that people are facing. Structurally speaking, I think there will be intense pain in the real economy.
Outside of my work on Youtube, on the weekends, I teach Teen Youth in my program at Tigerway for college advice, and I firmly believe there are WAY too many high school students looking to be computer science majors. There is an imbalance between opportunities in this sector and the number of aspiring applicants.
In addition, salary expectations have gotten far too high for fresh graduates, and I expect these expectations will be completely reset in the coming 2-3 years as hiring becomes far more selective and employers become more selective in their human capital strategy.
My work on Youtube and off Youtube gives me incredible insight into what Gen Z is thinking and provides me critical data into understanding what technology young people are using in social media (helps me understand Instagram’s appeal vs. Tik Tok and therefore Facebook’s near-term prospects).
My work on Youtube and Patreon is the culmination of my investment background and my passion towards thoughtful education for my global audience.
Companies cannot afford to keep paying workers elevated wages if the end market demand weakens. Wages have increased to the point where the tech sector has signaled that hiring will slow, and only the best applicants will win spots to work at these companies.
Be grateful for what you have. Count your blessings, because things will get more challenging. So use this period of time to uplevel your skills.
This also means that the market will be more sensitive than ever to incoming economic data.
Before, the market didn’t seem to care much about economic data. That will change, starting right now.
If you are an investor who does not yet understand the implications of how Jobs, Unemployment, PMIs, or Consumer Confidence play a role in this new environment, I would encourage you to step up your commitment to education during this period of time (which could end up being a tremendous opportunity).
With the Fed starting a series of 50BP hikes on May 4th (May FOMC) and the beginning of Quantitative Tightening (QT), investors need to realize that there is a very strong chance that passive index investing is going to be far more dangerous going forward.
That’s because the SPX is heavily dependent on the Mega Caps.
But what if the Mega Caps stop working?
Do you know WHERE else in the S&P 500 to look for opportunities?
Some investors still have the mindset where they should continually buy any dip on the S&P 500 because the index always go up.
Let me be clear: certain THEMES will recover and during specific PERIODS of time.
I do believe we will see one final grand recovery before the party truly ends. But it will be exceptionally choppy, and I believe only some themes will participate.
Later this year, we may have a limited window in reallocating our asset allocation to more safe strategies before we see a secular decline that the bears are calling for.
And at the same time, learn the lifelong skill of how to think about markets as an outstanding Equity Analyst and navigate your career with greater certainty/better strategy.
What we’ve been doing inside our Investment Community
In the last public email update, we discussed being proactive with $SHOP risk-reduction BEFORE their earnings as we saw ETSY/EBAY/AMZN weakness as a sector wide trend that $SHOP was unlikely to avoid.
I still hold SHOP. Painful. But LESS painful given our proactive research.
We discussed NOT to buy the dip (BTD) even after the massive selloff we saw on Thursday May 5th post FOMC, even though Bloomberg reported that retail investors attempted to buy the dip that day. We all know what happened to tech stocks on Friday, May 6th. Not pretty.
We are already actively exploring, evaluating, and analyzing which themes in the market will experience a rebound before a recession overlays the entire market with softness (the specific themes are discussed inside the community)
(Image: As discussed on May 5th epic selloff with Dow down 1000 - enough evidence/data to buy the dip for me? Nah. Soon, but not at that moment)
I know this sounds crazy, but our indicators on that day said that only certain pockets of the market are oversold. The SPX, QQQ, and DIA were not yet oversold - despite the heavy selling we’ve been seeing. I know, I know that sounds awful given that the Nasdaq is barely defending 12,000 and SPX is already at a hairline of 4100.
I continue to root for the bulls, but I MUST follow the market’s lead.
When risk/reward swings strongly in our favor, I will provide strong guidance inside Patreon on how to as safely as possible provide guidance on how to take advantage of market conditions.
In my public emails here, I provide thoughtful overviews to expand your thinking. Inside my community, I provide specific levels I am eyeing, conclusions, and actionable strategy. As well as career guidance for aspiring or existing finance professionals.
Remember, there’s a reason such a meaningful percentage of our community is finance professionals. Finance professionals know what’s good and what’s bullshit.
That’ll do for this short update.
If you’re looking to truly understand the investing environment we’re in, and want to support my research/work, let me help you inside my community. I’m on a mission to help people as many people as I can - hardworking, highly intellectual people like yourselves.
❤️ this email if you enjoyed the read. And see you in my next Youtube Video.
Until then, follow me on Instagram for some VISUAL commentary.
Your Investment Strategist,
Larry