The NASDAQ-100 index is now experiencing the 15th largest drawdown from January 1, 2003. Meanwhile, the story shows that the average period of drawing and recovery for the index lasts more than six months. The current correction can seriously affect the psychology of retail innovation investors who came to the stock market last year, because they have never come across such long-term braking.
We believe that prospects for investing in the promotion and support of these securities will in the near future will depend on the duration of the drawdown, so these indicators must be monitored to understand the development of the market situation.
For 15 trading days, the fall of NASDAQ-100 decreased (by March 9) by 10.9%, and the cost of our basket of "bubble" shares (see RPC) fell by 27.9% compared with the peak. According to many both professional and retail investors investing in growth promotions (this is usually paper technological and younger companies with the prospects for rapid business growth), it was a heavy blow. Many, he found surprise or at a minimum showed that investors underestimated the sensitivity of such shares to the level of profitability of governmentobaligations and did not pay enough attention to them.
Saxo Bank includes stocks, quotes and multipliers of which indicate that a bubble is inflated on the market, in which the company's value ratio to sales (EV / SALES) exceeds 10 and net loss is expected in the next 12 months. The company themselves, their products and services may well be effective, their business in the future can successfully develop, but the idea of incorporating papers in the basket of "bubble" shares reflects the assessment of the fact that the stock price broke away from fundamental indicators. Now the basket includes, for example, shares of companies such as Airbnb, Doordash, Roku, NiO, etc.
Reducing the cost of our basket of "bubble" shares can reach 50%, which will be very painful for many investors. As a result, it can return to the levels of September last year, which means a drop of another 32% of the current levels. For excessive growth, it is usually an increased volatility and often a sharp decline. This teaches the story, so nothing new happens today.
Each drawdown has its own reason, and comparisons need to be done very carefully, but with a significant correction, the clarification of the statistics of previous cases suggests itself. The current drawdown is the 15th largest from January 1, 2003, so at least many investors it seemed to the collapse, in fact it is rather a medium-sized correction. The median and average duration of these 15 drawders is 121 and 157 trading days; So, if the current correction corresponds to the average indicators, it can last from six to nine months.
The duration of the decline strongly affects the psychology of investors. Just because of it, many retail investors left the stock market, as when in 2000-2002. Foured a bubble of dotcomms. Investors are an impatient people, although many of them argue that they are investing for a long time. The fall in the market after the financial crisis of 2008 and the followed rise in unemployment also reduced the share of retail investors. Although the bull market began in March 2009, back in 2016-2017. A lot of articles appeared that there are still few retail investors on the market, and questions were asked if they would ever be returned. Much said about the weak involvement of young investors and women.
But in the last couple of years, the continuation of the growth of the stock market, an increase in employment, increased media attention to the shares of technological companies, cryptocurrency and taking TESLA - all this involved these people in investment. Many came to the market during mass locomotoves last year, already when he began to recover after the crisis collapse in February - March. This means that many new shoppers shares of technological companies have never seen any long recession on the market. Therefore, we believe that if the current drawdown of stock shares will become quite long due to the acceleration of inflation and increase interest rates, many of those who have invested in the promotion of growth will lose patience and will either change the strategy or will leave the market. After all, you can invest cool only when you get income easily and quickly.
The author's opinion may not coincide with the position of the VTIMES edition.