Just the Opposite: Let me reflect here on events going back about a year and a half: Starting around the fall of 99 there was an increased concern about Y2K. Remember those safe haven communities that were being created in the western desert areas, and the generators and wind up flashlights, and the talk of a huge market crash? Well the opposite was true, the Nasdaq was up about 85% for the year, and no Y2K problems at all really.
Then, starting 99, few thought the Nasdaq would go straight on up to 5000 by March after such great returns in 99. Fooled everyone again. Then, near the peak, we heard a lot about the "new economy" vs the "old economy", how the valuation rules needed to be changed, how techs are not sensitive to interest rate increases like the old economy stocks are. We had a high percentage of bulls on the tech stocks, and many predictions for year end close of 6,000 on the Nasdaq. In the chip sector, we heard that the cyclicality may be ending in the industry, since chips go into so much more than PC's, so AMAT was a strong buy even at 115. Then, surprise, the biggest selloff in the Nasdaq in 24 years (Wall Street Journal, ~5/22/00).
Then we entered the summer months, traditionally a weak time for tech stocks, only to see the Nasdaq climb to above 4100 in July, and again at the beginning of September.
Starting the fall, we were reminded that techs usually do well in the second half of the year. In early October it was pointed out that the main gains from techs this decade have been during the period from October 15 to March 15, so a strong rally was likely to be just around the corner. But it went the other way.
Then, it seemed the election was holding the market down. But it continued to go down even after that was finally settled. Then there was supposed to be the December rally, which never materialized. And now, in January, after the tax selling is all over, and the Fed likely to begin rate cuts soon, the expectation was that the market would rally. Also the "January effect" should help out, and techs in particular are oversold. No such luck, so far at least.
Of course the slowing economy is a big driver in all this, but that is tied partly to the market, due to the reverse wealth effect. The reason for summarizing all this is just to pose the question, how long can this go on? I am referring to the pundits being so wrong about everything, the opposite of what is expected ending up being the reality.
There is strong historical evidence that we need a high percentage of bears to have a true market bottom. However, after 10 years of great gains coming from tech stocks, it seems possible that it will take a long time for this to happen. Many on Wall Street only started their careers in the 90's, and therefore may tend to stick with the idea that a tech rebound is close at hand. This, hopefully correct, assumption will tend not to be correct unless most view it as incorrect. Therefore, I wonder if, to everyone's surprise, the Nasdaq could go down further and take longer to recover than people imagine right now. Lastly, I wonder if Alan Greenspan is sort of enjoying this tech crash after so much fun was made of his famous "irrational exuberance" speech a few years ago. Maybe that will be another surprise, that he will not lower interest rates as much or as soon as people expect.
Sorry for the gloom and doom, but any comments on this? I am pretty much fully invested, so I am just riding this out. However, I wonder if the pattern of opposites is going to continue, much to our surprise.
John |
