Hello Everyone. Generally in US, stock market will be happy in January.
Fund managers who sold all the stocks in loss in December buy back into the market in January.
That in general causes the market to go up in January.
But this year, market got ahead of it usual move up.
S&P500 has gone up by 7% so far this year. Nasdaq 100 - 14%.
High growth ETF ARKK has gone up by 33%.
It was beaten so badly last year. It is still down 75% from its all time high price.
A math for you here. This is 75% down form its all time high.
How much % does it have to go up to get back to its all time high price? Share it in comments below.
Market bounced many times like this last year. But soon it petered out.
The different this time around is, current price is over 200 day moving average price pretty comfortably.
That is a positive sign. But does this rally last? We have to wait and watch.
We should note one thing here. Many are waiting in the sidelines of the market waiting for the market to stabilize.
A historical data for them. If we remove 10 best days of the stock market from a decade, what would be its impact in final return? We can see that here.
Most of the time, the return is cut more than half.
Just for missing 10 days in 10 years, we are seeing this big of a difference in the return.
"Oh, we would have escaped from the 10 worst days as well" you might think.
Did we escape? We would have realised the worst only after it has happened.
Assuming that it is going to get worse, we would have got out of the market.
What happens then? We would have experienced the worst and also missed the best days.
That is why it is better not to time the market, but to stay invested all the time.
What about Indian market?
I don't really have anything to add. You all already know what is going on.
After the release of Hindenburg's report about Adani, there is negativity all around.
Even in this rout, it is good to see that Nifty 50 has gone down only 1.7%.
We don't have to research whether that report is true or not.
There will not be smoke without fire. We are seeing the smoke. Why should we research whether there is fire or not?
Isn't it better to leave the smoky area to a clear area? We have that luxury.
What I am trying to say is, we have 1000's of businesses to invest.
Do we really need to invest in a business with this many complaints?
It is better for us to get away from it.
If we try to invest in the company just because its share price has got beaten down a lot, then it is not investment, it is pure gambling.
You can gamble. It is up to you. But don't cheat yourself assuming that it is investment.
Acknowledge that it is gambling and then put your money there.
OK. What happened the recession story in US?
Latest US GDP data does not show any indication of recession at all.
The GDP data of 2022 Q4 shows that the economy has expanded 2.9%.
Though the quarter over quarter data is showing an expansion of 2.9%, Year over year data shows that it has expanded only 1%.
That means, economy expansion is slowing down. But it has not gone to negative yet.
How about jobs data?
We saw layoffs in 10,000's. When we were expecting an impact of that in the job report, labor department gave a shock the market.
517,000 new jobs were added in January.
Unemployment rate has come down to 3.4%.
It was never this low since 1969.
Most of us wouldn't have even born at that time.
It is that low. Job market is that strong now.
Though the job market as a whole is strong, information sector is continuing to shrink.
When we look at the strength of GDP and jobs data, recession is nowhere in the sight yet.
Federal reserve was expecting a soft landing. The chances of that is keep increasing.
Soft landing is, increasing the interest rate to get the inflation under control without pushing the economy into recession.
Till now market was very confident that we will get into a recession. Now we are seeing that it is possible to avoid a recession.
Many tech heavy weights like Google, Apple and Amazon reported their earnings last week.
2022 was a challenging year for everyone.
We can see the difference in revenue growth between 2021 and 2022.
In 2020, Apple's revenue was at 294 Billions.
In 2021, the revenue grew to 378 billions. 29% growth.
But in 2022, it has gone up from 378 to only 388. 2.5% growth.
Same story in google as well.
We can see the impact of federal reserve's interest rate hike here.
These are still profitable business. But the growth now is very slow compared to the growth during 0% interest.
Not just with technology companies, S&P 500's all companies have the same story.
We can see how the sales growth has declined in this chart.
That is why stock market tends to go down when the interest rate rises.
During the last federal reserve meeting, 25 basis points has been raised in fed funds rate as expected.
Since last July, they increased 75 basis points for every meet.
In December they slowed down to 50 basis points. Now they have slowed down even further to 25 basis points.
We can expect the interest rate to increase by another 25 basis points in march and another 25 basis points in May.
After that they might leave the interest rate unchanged. After December, they might start reducing the interest rate.
This is market's expectation. Hopefully by then, inflation should be under control.
If it comes under control, things will happen as market is expecting. If it does not come under control, then the interest rate will be risen more.
That will have even more impact on business growth. We have to wait and watch how that develops.
Next inflation data is coming out on Feb 14th.
As if the trouble from inflation is not enough, we now have "Eggflation" in US as well.
Egg price is keep soaring up. A dozen egg used to be $1.75. Now it has gone up to $4.25.
We blame it on other countries for any trouble we have. Similarly, egg price was blamed on corporate greed by some.
But it turns out, that many chicken died because of bird flu. Egg scarcity came from there.
Beautiful charts like this is created by Charlie Bilello.
If you are interested up to date data, follow him in Twitter.
Ran into "Global Innovation Index" chart in Visual Capitalist site.
US is at 61.8 on Innovation index.
China - 55.3 and India - 36.6.
We are already seeing many start ups coming up in India.
We don't have any doubt that the innovation index will go up for India in the current decade.
But don't just invest in Indian market. Like I always say, it is better to have US market exposure as well.
As expected, Microsoft is integrating chatGPT in their Bing search.
Early testers were very impressed.
Nadella is adding more pressure to Google by giving many interviews.
"We got nothing to lose in search market. But Google has everything to lose" - Nadella is in war mode.
Google was pushed into introducing their half baked AI chatbot Bard with many issues.
And so the AI war has officially started.
Like Nadella says, Microsoft has got nothing to lose there. They got more opportunities to gain.
But for Google, their core business is at a risky position.
Market knows that as well. We can see that in the market price. Microsoft is keep climbing up and Google's share is going down.
Have you read Morgan Housel's "Psychology of Money"?
It is really a good one. If you have not read yet, please do so.
Morgan Housel writes blog in collabfund.com
We can see many of the concepts in Psychology of money in his blog posts as well.
Recently he published an article called, "Everything you can't have".
"Why are we running behind money? What are we going to do with it?
"To buy a new home? or to buy a new car?
"Would we stop running after buying that new house or car?
"Or would we continue to run to buy other stuffs?"
We just want to keep buying something new.
We will not get satisfied with anything. We will keep running for ever.
That is called, "Hedonic Treadmill". When we have a 10 Lakh car, we will have an eye on 20 Lakh car.
When we have a 20 lakh car, we will have an eye on 50 lakh car.
There is nothing to control our "wish". So what do we learn from here?
Nothing really. Just we can understand that we will keep running forever. That is all.
See you all soon in next episode. Bye.