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ITPM Flash EP 30 Introduction:
In this blog post, we will discuss the recent happenings in the market and analyse the current trends. We will also explore potential investment opportunities that have caught our attention. Please note that the information provided is based on historical data and market analysis, and there is no guarantee that history will repeat itself.
Market Update:
The market has been quite eventful recently, with various factors influencing its performance. Economic data, earnings reports, and the Federal Open Market Committee (FOMC) meeting have all played a role in shaping market sentiment. The FOMC announced a likely shift in policy, signalling future rate cuts. However, the market was disappointed as it had hoped for rate cuts to begin in March.
Bearish Sentiment:
Despite the market's positive performance, there are still many frustrated bears out there. This can be confirmed by the hate mail received from the "Doom and Gloom" crowd. However, from a non-emotional and objective perspective, it is important to analyse the market's performance over the past two years.
Market Correction:
Looking at the chart, we can see that the market experienced a normal and subdued correction after reaching its high in January 2022. The correction lasted for nine months and resulted in a 27.5% decline. It then took a total of 24 months for the S&P to rally back, reaching a new all-time high and gaining 38% from its low. This pattern is consistent with historical data, where the median number of months for a 20%+ correction to rally back from its all-time high is 25 months.
Comparing Corrections:
It is worth noting that the recent correction was not as severe as some of the past corrections. Previous corrections averaged a 36% decline, with the worst being an 86% decline. The absence of a recession during this correction sets it apart from previous ones. The initial rally from the COVID-19 pandemic may have been a pull-forward effect, leading to confusion in the market.
Potential for Future Rally:
historical data, we find that after a significant correction, the median rally is 6% after 49 months (slightly over four years). If the market follows this pattern, it suggests that the S&P 500 could rally above 7,000 by the end of 2026. Looking at the average rally, history suggests that we could see the S&P above 8,000 by the end of 2026.
Changing Leadership:
While the market has been led by big tech names like Microsoft, Google, and AMD in recent years, it is likely that the leadership will change in the future. These tech giants may have limited upside potential from their current levels. Instead, small to mid-cap names that have been under loved and under owned could see more significant gains.
Investment Opportunities:
Sectors like financials, utilities, and consumer discretionary, offer potential investment opportunities. These sectors and companies have been undervalued and could experience significant rallies. For example, Groupon (GRPN), an e-commerce company offering discounts on services, has a market cap of under $500 million. With any positive news, Raj Malhotra believes that the stock could easily reach $21, a 50% increase from its current level*.
Conclusion:
While the market has experienced recent volatility, it is essential to analyse the historical data and trends to make informed investment decisions. The market correction we have witnessed is not unprecedented, and there is potential for future rallies. By focusing on under loved sectors and companies, investors may find attractive risk-reward opportunities. However, it is crucial to conduct thorough research and consider individual risk tolerance before making any investment decisions.
Disclaimer:
*The information provided in this blog post is based on historical data and market analysis by Raj Malhotra from ITPM Flash Episode 30. It is for informational purposes only and should not be considered as financial advice. Investing in the stock market involves risks, and past performance is not indicative of future results. Always do your own research and consult with a qualified financial advisor before making any investment decisions.