Similar to The Four Ps of marketing mix (Product, Price, Place and Promotion), I was thinking of The Four Ps of (current state) of Stock Markets. Let's look at "The Four Ps of Markets"
Post Pandemic Growth: Pandemic pulled forward growth of many companies such as Zoom, Roku, Netflix streaming numbers, enterprise spending, cloud growth etc. 2 years later Pandemic seems to be on its way out and world is returning to normalcy. Post earnings calls. Markets started worrying about what would post pandemic growth look like for high-growth companies. Stock prices of most of these companies reached peak 12-15 months back and are now 50-80% down from those peaks (Zoom stock reached peak in Oct 2020 when it was valued more than IBM). High double digit (in some cases triple digit) growth is over and these companies must be valued based on growth going forward. Even achieving 30-50% growth on bigger numbers is going to be difficult. And we all know what happens when growth music stops...Some of us are still waiting for peak valuations reached during .com bubble bust.
Powell Fed Policy: Powell's Fed is definitely behind the curve when it comes to inflation (which was transitory according to Fed just few months back). Inflation and expectation of high inflation have started taking roots and that's dangerous as it would drive customer behaviors. Combined with supply chain issues and tight labor markets, it could really get out of hand. Hence many Fed committee members have started advocating 50 basis point rate hike in March meeting and follow thru further rate hikes in every meeting. Just few weeks back, markets did not model this and now must adjust to this new reality. That means 2022 may end with Fed interest rates closer to 2% and 30 year mortgage closer to 5%. With easy money gone it would have impact on everything from crypto prices, cooling of housing (which is much warranted) and busting of unicorn valuations as well valuations of high-growth companies. The price-to-sales ratios would compress from 30-100 to 5-20. In fact some of the companies like Fastly, Roku, Spotify are already near 5 P/S ratios. Now they need to start earnings profits while maintaining high growth and that's difficult balancing act.
Putin Games: Putin may be one of the shrewdest leader running a big country. He knows what he wants - basically restore the old glory of Soviet Union and raise his personal standing on world stage. He knows that West is not united and Americans don't want to fight someone else's war after war fatigue from wars in Iraq and Afghanistan. Putin had experienced mild reaction from world when he took control of Crimea in 2014. As long as China is neutral and West is divided, Putin would play his mind and war games to make sure that Ukraine and other Soviet Bloc countries remain under Russian influence as long as he is leader. And unfortunately he won't mind going to war to achieve these goals. Normally this should have impact only on energy markets. But given first two Ps, every news on Ukraine crisis seem to impact valuations of everything.
Pain and Panic: Nasdaq (down 13.5%) is already in correction mode and S&P (down 8.5%) is close to correction levels. But indexes don't tell the full story - except energy and utility sector, most of the sectors are in bear markets. Software companies are down by 30-50% and Pandemic darlings are down by 50-80%. Even company like Moderna which effectively saved the world (along with Pfizer, J&J and AZ) with its covid vaccine is down by 70%. So pain is wide-spread. But still there is no panic similar to March 2020 or March 2009. And guess what - March 2022 is just around the corner. So it's possible that final flush may be only few weeks away. Once markets see real panic, that may be signal that it has reached bottom.
There you have it - The Four Ps of Markets!
/Shyam
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