Things suck, look thru?
Things suck, look thru?
Most of the time the stock market is blurry to its participants. If stocks are going up, which most prefer, the ease with which negatives are dismissed as unimportant or discounted is swift. I cannot tell you how many times during every rally in 2022 I heard “no one is long anymore”. Really? Maybe investors are less levered long, but someone goes home each night owning stocks, every single one of them. Let’s take a step back. The price of a stock can be anything in the short term. No shit sherlock, right? No, I mean if you opened $AAPL on Monday at $134 instead of Friday’s close at $154, it would be 21x earnings instead of 25x. It would likely trade the same volume as it usually does. But a sudden $20 discount, on that day, would cause many to buy as its “on sale” with no news? It was just $134 in the middle of June and traded the same volume those days roughly as today. Did anything really change?
So, what is my point? $SNAP traded 40m or so shares on Thursday at $16, followed by 330m on Friday at $10. The market is not efficient, it is emotional. Pain (losses) causes selling and pleasure (profits) causes confidence and buying. We can “look thru” bad news if it isn’t causing us pain currently. For example, on Tuesday morning, Morgan Stanley Asia wrote a piece saying hyperscale/cloud orders have recently been cut dramatically. Had this “call” been made at the market lows of a couple weeks ago, it would have been painful and caused more selling in suppliers such as $ANET, $MRVL, $AMD, $NVDA. However, the market psychology turned on Friday July 15th to peak inflation again. Negative news got ignored temporarily. And yes, sure, we 100% agree inflation has likely peaked. But, is the demand weakness companies are seeing about to turn less bad, even positive enough that we should “look thru”? Not so fast! Are the valuations at trough levels assuming these large estimate cuts? Hardly. $AXP had a strong quarter while $COF had a weak one (along with $VZ, $T). Is one backward looking and the other foreshadowing problems ahead?