Cutting the Head Off

Just like a good bartender cutting off the frothy head of a newly poured beer, investors are now cutting off the frothiness of recent market action. It got a little crazy with money plowing into some already ridiculously valued stocks just because they were going up. Momentum begot momentum! Then it didn’t. The correction catalyst was the reappointment of Jay Powell as Federal Reserve Chair. The calculation is that he will now be freer to begin interest rates rises sooner than previously anticipated.

Actually, many high-value growth stocks have been under pressure for some time as a few mega-cap ones continued to attract new money. These were probably perceived to be safer – momentum darlings. However, when these also came under pressure the sector correction became obvious; note the most recent tech-wreck. When the leaders correct, this is usually a sign we are closer to the end of the process than the beginning.

With December upon us, investors are entering into a seasonally strong period. Therefore, we expect this tech correction to be over soon. It does, however, reinforce the resurgence of value stocks. So far this year, both value and growth have done well. The Bull and his partners expect this to continue. The consumer is strong, and businesses are doing very well. No recovery is a straight line, seasonal strength is now in play; stay steady my friends.

The Lonely Bull