How To Play This Market Volatility

Technology stocks were particularly hard hit. The tech-heavy Nasdaq Composite dropped 10% in a month.

And the SPDR S&P Biotech ETF (XBI) saw an even bigger drop, falling 20% to start the year. Even the cryptocurrency market cap has been crushed, falling roughly $500 billion during January’s selling.

Obviously, this is deeply concerning… The red we’ve been seeing has hit all of our portfolios, including mine.

Many readers are concerned whether we’re on the cusp of a market crash.

So today, let me explain what I see going on in the markets… and share my blueprint for handling this volatility…

Fed Fears

The market is really overreacting to the signals coming from the Federal Reserve. The Fed is implying it will raise the Fed Funds rate several times in 2022.

It’s said it could raise rates three or more times throughout the year… and will reduce the assets it’s buying as well.

That’s been causing a lot of concern in the marketplace.

As I mentioned above, technology has been particularly hit. And while this has been a broad market decline, the tech sector has been impacted a bit more than the S&P 500 since that’s where we’ve seen some inflated valuations.

And all of this volatility is causing some of those inflated valuations to come back down to earth.

I’ve warned readers several times about the lofty valuations of companies like Snowflake (SNOW) and Zoom Video Communications (ZM).

When companies trade at 80–100 times sales, then those ridiculous valuations need a correction.

The Fear Is Overblown

We do have real inflation right now, but there’s one big reason why I think the Fed’s talk about rate hikes won’t become action.

We don’t have the desire or the willingness to raise interest rates that significantly given the November midterms that are coming up.

I believe a 25 basis point increase will occur in March. Beyond that, I’m very skeptical. We may see one rate increase after that, perhaps in Q2.

But during the second half of the year, I just don’t see the Fed touching rates. It’s too dangerous, and they won’t risk impacting the markets in that way.

Already people are struggling with the increases in the cost of just about anything that we purchase. Having the markets and the value of our savings and our stock portfolio decline at the same time is just unacceptable.

But we will see a secondary effect, though… With declining asset prices, I do expect to see the labor market return to a much healthier state.

We had record levels of resignations in 2020, and that was largely driven by the fact that the value of people’s homes, stock portfolios, and cryptocurrency portfolios were high.

People felt like they had the cushion and could live without needing to work.

As asset prices decline, we’re actually going to see a shift back into the workforce. I very much expect the labor force participation rate to increase in the coming months.

We have to remember that we have a very strong economic environment despite the chaos we’re seeing in the markets.

Where Do We Go From Here?

I want all my readers to know my team and I are watching the markets very closely. We’re looking for great investment opportunities, as fantastic assets and companies come back down to realistic valuations.

Ultimately, I believe interest rates will stay below 1% in 2022. And that means that the money will continue to flow into the equity markets.

And in the meantime, we’re still on the lookout to help readers through the turmoil we’re currently experiencing… After all, many investors are worried… and are wondering exactly how to play this situation.

Should we buy? Should we sell? Or should we hold?

The good news is, I’ve put together an exclusive briefing to cover this very topic.

On February 16, at 8 p.m. ET, I’ll share not only on the best way to play the markets… but also what I’m doing with my own money right now. And I’ll also be unveiling the name and ticker of one of my top stocks for an easy double this year.

If you haven’t already, please put February 16 on your calendar.

And then simply go right here to RSVP for this event. I promise it will be worth your time to tune in.

I’ll look forward to seeing you there.

Regards,

Jeff Brown
Editor, The Bleeding Edge

Like what you’re reading? Send your thoughts to feedback@brownstoneresearch.com.