Back in August, Savitz and friends were saying that Sept was going to be a down month.
The fact is that tech shares have been hit since last April, even as earnings have gone up sharply, resulting in what most people think are pretty cheap valuations. At least, they are cheap if the bottom doesn't drop out of the economy. These valuations have resulted from perceptions of a highly uncertain economic backdrop and concomitant fears of a double dip, IMHO, and have been anticipating these warnings, IMHO.
Savitz wrote:
Susquehanna Financial Group analyst Chris Caso likewise wrote in a research note late last week that there is likely to be more bad news on chip fundamentals and that it is unlikely the group has bottomed. "We would like to see broader estimate cuts endorsed by management—and see stocks react well to those cuts—before being convinced that we have reached a bottom," he writes.
Well, some of that happened last week, with AMD's warning that was followed by a huge rally in both AMD and chip stocks generally. We'll see if there is any follow through next week. After Savitz's article, there will likely be a knee jerk drop Monday morning (although I can't fathom why people actually think that Savitz has any knowledge whatever of where the market is going, but never mind that), and I don't doubt that there will be profit taking and a lot of anxiety after Friday's big pop (fears of "missing the train" as well as fears of "take this opportunity to get out"). But, IMHO, the last 6 months have been anticipating these warnings, and the question now is, where will the next 6-12 months take the economy? ECRI's WLI and growth index have mirrored the slow economy pretty well since last winter, and they have been gently rising over the past couple of months, albeit in fits and spurts. That is probably what is happening in the economy now, and after the election is over, we will have better visibility about what will happen legislatively over the next year (in particular, with taxes). The economy here will pick up a little as some uncertainties are relieved, and it looks like India has avoided another year of drought thanks to strong monsoon rains (too strong in some areas), and China has avoided overheating economic growth and out of control inflation while still maintaining strong high single digit growth.
There will be volatility, for sure, but personally, I would worry more if Savitz was bullish. |
