February 4, 2023

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Lex hits and misses: up front with market routes, down with technical nuances

Lex thought stock markets would fall in 2022. We were right. Any complacency is offset by the knowledge that we made a similar call two years earlier. After that, share prices went up.

We keep a close eye on how our prophecies work, and that is the subject of today’s column. The caveat is that our outlook is medium-term. That could still turn some hits into misses and vice versa.

We made our bearish call on equities, primarily US equities, in a note and newsletter towards the end of November 2021. In our view, overblown earnings estimates pointed to a market top. We were of the opinion that inflation would not be ‘temporary’, contrary to what US Federal Reserve Chairman Jay Powell said.

The S&P 500 is down 16 percent since then.

A few weeks prior to our prediction, we expressed the view that far from being uncorrelated with conventional assets, cryptos would be “sticked to linoleum by an ongoing bear market.” Bitcoin is down 72 percent to date.

In February, we felt that EM debt was bound to falter further as US interest rates rose. The JPMorgan Emerging Markets Bond Index, meanwhile, is down about 20 percent.

But if you have a wooden spoon to give, Lex would be a candidate for some of our calls on tech stocks. We’ve always seen automation as a major secular trend. Cyclical ups and downs in asset prices increase or decrease the implied value that is created.

We didn’t anticipate the magnitude of the blow technology stocks would take in the switch from growth to value stocks.

The flood of tech IPOs that we forecast in January therefore failed to materialize. We’ve made the “Don’t turn off yet” error related to Netflix worse. The stock is now down 26 percent. We later turned the streamer bearish. But until then, we were chasing momentum rather than predicting it.

Our suggestion that Apple could reach a $4 trillion market cap through sales of Metaverse glasses now seems short-sighted. The device maker’s value has fallen from $3 trillion to $2.1 trillion. Apple could still hit $4 trillion — but even in the mid-term, that’s unlikely.

We remain bearish on the direction of equity markets in the new year, having rightly dismissed the August excitement as a suckers’ rally. But opportunities to buy the dip should become more plentiful.

The Lex team is interested in hearing more from readers. Please let us know which of your investment calls have done well or poorly this year in the comments section below.