My Thoughts For Today - This isn't 2000 again

June 13, 2023

MY Thoughts FOR TODAY, JUNE 12, 2023: This isn't 2000 again

Last year, growth stocks got hit hard and plummeted due to rising inflation and interest rates. While we expected a pullback, the rapidity and magnitude of the sell-off was unforeseen, except by the broken clock perma-bears. As bad as it was, I knew we would rebound. And boy have we done so. We might not be back to levels last scene in late 2021, but we will get there. If you had patience you benefited. If you got scared out of the market, then you underperformed this year. For some people, getting out of the market may have been the right move. It’s a factor of psychology and personal needs. As Warren Buffett said “be “fearful when others are greedy, and greedy when others are fearful.” This year it was time to get greedy.

Now after the fantastic run and the media declaring that the S&P 500 (SPX) is back to a new bull market (I never bought the 20% Rule of Thumb, which states that when the market rallies 20% off of a “bear market” low it is in a new “bull market” and when the market declines 20% from a “bull market” top then it is in a new “bear market”), I am beginning to hear some other calls; namely that this is 2000 all over again.

Recall that in 2000, the great tech market of the 1999s came to a screeching halt. Tech stocks collapsed. There are no indications that tech stocks are going to repeat the decline of 2000, for a few reasons:

  1. Prior to 2000, the tech IPO market, particularly for what we refer to as Dotcom stocks was as hot as lava flowing from a volcano. IPOs were brought to the market in the mornings and by the market close that day rose 5x-10x the offering price. Right now the IPO market is as dead as a door nail.
  2. Those tech stocks in the 1990s market for the most part had no earnings or positive cash flow. Many even had no sales or were just a hopeful concept. The balance sheets had bankruptcy written all over them. The poster child for that silliness was Take a look at on the wayback machine.
  3. Today, the tech landscape is dominated by large multination corporations that have large cash reserves, huge earnings and, if you use the Z-score (invented by NYU Stern MBA teacher Professor Edward Altman) when making investment decisions, these companies are in solid shape. Some are even survivors from the DotCom era, such as Amazon (AMZN) and Apple (AAPL). Any new companies on the scene also have healthy sales and well-fortified balance sheets.
  4. Stupid ideas are ferreted out rather quickly by the private equity market. Even Theranos never hit the public market. There is no sucking away public investor money.
  5. The global settlement between Wall Street firms and NY Attorney General Eliot Spitzer evened the playing field between analysts and investors. No longer are analysts allowed to push worthless companies and are not allowed to be compensated by investment bankers.

Now there is a new technology called Artificial Intelligence or AI that is at the forefront of tech investors’ minds. We are in the early stages of AI. Regulators and legislators are wary of the dark side of AI and are trying to prevent bad actors from infiltrating the technology. Right now AI is barely impacting your lives, but increasingly in the future it will. I saw this coming late last year / early this year and have allocated a healthy piece of our Growth Portfolio into AI related companies. The aforementioned AAPL will become as big a player in AI, as will Nvidia (NVDA) and Microsoft (MSFT), to name a few, but there is much more (SMCI, AI).

Let’s turn ahead to this week’s calendar. Monday several Treasury Auctions will take place from maturities of 3 months to 10 years. Tuesday the all-important reading on inflation, the CPI (Consumer Price Index) will be released with a year-over-year (YOY) expectation of 5.3%, down from last month’s reading of 5.5%. Also on Tuesday the FOMC will begin its two-day meeting and announce its interest rate decision on Wednesday at 2PM. That will be followed by the FOMC Chairman’s press conference. Expectations are that the FOMC will pause and not hike rates this week but will leave the door open for future rate increases. It’s likely that there will be market volatility Wednesday afternoon. Thursday retail sales and weekly jobless claims are set to be released.

Disclosure: At the time of this commentary Richard Siminou, his family and/or clients of Siminou Wealth Management, LLC was long AAPL, NVDA, MSFT, AI, and SMCI - although positions can change at any time.