01/20 Links: Stock Market Correction – Time to Panic?

Is it time to panic?

This morning, the news media is making a huge deal about the “stock market correction” we’re seeing for tech stocks.

After Wednesday’s decline, the Nasdaq Composite and Nasdaq 100 indices both crossed the 10% pullback mark that technically qualifies as a “correction.” And if you follow some of the sensational warnings that I’ve seen this morning, you know that the next step lower would trigger a “bear market”

So should you be frightened and run for the hills?

Or is this just part of the normal ebb and flow of markets?

Hopefully you’re not one to make emotional decisions with your investments. After all, the fastest way to crush your family’s wealth is to sell during times of fear and buy when everyone else is getting greedy. That’s a recipe for disaster!

To be sure, some areas of the market are weak. And my guess is that they will continue to be weak as investors move capital into more stable areas of the market.

But that doesn’t mean your investment account needs to suffer.

Keep in mind, the Nasdaq Composite and Nasdaq 100 indices are full of high-growth technology stocks that have been falling out of favor. Many of these companies generate very little (if any) profits. And now that interest rates are rising, investors have a hard time justifying the inflated stock prices.

In many ways these stocks deserve to be trading lower.

And at the same time, many stocks that generate reliable profits deserve to be trading higher.

So stepping back and looking at the market as a whole, I see a healthy environment. Capital is moving towards the stocks that help our economy grow at a stable rate.

And if you invest wisely in the companies that create value, you’ll do just fine.

Now, let’s switch gears and take a look at some of the most important links from my morning research.

The Nasdaq Enters Stock Market Correction

• WSJ: Stock Futures rise after Nasdaq enters stock market correction.
  • Earnings from AAL, NFLX, PPG and more are on deck for the day.
  • The Nasdaq Composite closed 10% below its high – triggering a “correction”.
  • The 10-year treasury yield rose to 1.835%. Interest rates are clearly rising.

• Bloomberg: Stock Selloff puts Nasdaq into Correction.
  • The Nasdaq Composite slid more than 10% from the November high.
  • Traders are watching the Fed, worried about aggressive rate hikes.
  • Oil reached a fresh 7-year high with demand proving resilient.

• WSJ: The pros are now paying attention to retail traders.
  • JPM launched a new data app that tracks stocks individuals are buying & selling.
  • Last year 15 million Americans signed up for brokerage accounts.
  • Individual traders purchased $292 billion of stock in 2021.

Inflation Continues: Higher Costs Ahead

• WSJ: As inflation bites, power lies higher up the food chain.
  • Rising prices are outstripping wage growth, causing problems for grocers.
  • Suppliers like Nestle, Unilever and Danone will be charging higher prices.
  • Investing in suppliers (rather than end-market grocers) is likely to pay off.

• CNBC: United warns omicron will delay travel recovery, drive up costs.
  • First quarter revenue is expected to be 20% to 25% below pre-covid levels.
  • The airline scrapped plans to increase capacity by 5%.
  • Bookings for spring and summer remain strong.

• FT: Is there an end in sight to supply chain disruption?
  • Congestion at LA and Long Beach ports remains high.
  • If bottlenecks persist, freight costs and shipping delays will remain high.
  • Forward demand for container shipping continues to rise.

• WSJ: Lumber rebound awakens timber market.
  • Record lumber & cardboard production are lifting timber prices.
  • The current $26.44 per ton spot price is still well below previous years.
  • Prices for lower grades have risen more sharply.

China’s Problems Continue…

• Reuters: China drafts rules to ease property developers’ cash crunch.
  • China is drafting rules to allow developers to access funds in escrow.
  • Rules would help meet debt obligations and finance operations.

• WSJ: Too many boys skew China’s economy.
  • The sex ratio in China (more men than women) is widening.
  • This drives incentive for men to save more to “compete” for marriage.
  • Higher savings and spending on real estate drives prices higher.

• MW: Alibaba surges as interest rate cut in China fuels broad rally.
  • Lower Chinese interest rates leads to jump for U.S. listed Chinese stocks.
  • Shares of BABA, JD, NIO, DIDI, IQ, XPEV, BIDU, MCHI could begin to rebound.

Digital Assets in Focus

• FT: Meta dives into NFT digital collectibles craze.
  • Parent company of Facebook plans to allow users to create & sell NFTs.
  • Meta has also discussed launching a marketplace for NFTs

• CoinDesk: Grayscale Bitcoin Trust discount hits record.
  • The fund traded at a 26.5% discount to the value of Bitcoin held.
  • The discount could be due to skepticism on plan to convert fund to spot-based.
  • Bitcoin is down 37% from its all-time high near $69,000

• WSJ: Bitcoin sags under weight of stock selloff and Fed policy.
  • Bitcoin is off 8.7% this year, dragging down stocks related to cryptocurrencies.
  • COIN, MARA, RIOT, MSTR are all off sharply since Bitcoin peaked.
  • Volatility is likely to continue as the Fed raises interest rates.

• FT: Regulator says EU should ban mode of crypto mining.
  • Cryptocurrencies pose risk to Sweden meeting climate change goals.
  • Regulators should favor “proof of stake” models over “proof of work.”
  • The amount of computing power used for mining is at record levels.

Here’s to growing and protecting your wealth!