Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, August 29, 2022.

Brendan McDermid | Reuters

Am I getting rueful that 2022 will end soon, and we will be heading into the unknown of 2023? Are you kidding? The market is faster than my dogs in a thunderstorm and less happy than my husband when I want to “take back a word” in Scrabble.

I will not, under any circumstances, regret leaving 2022, even if we have a good rally in the fourth quarter.

This brings us to a central point: Was there anything other than the well-documented and nostalgic runaway inflation from the stimulus and demand for a zero interest rate that led to the bear market we experienced this year?

I like to call it “Covid Revenge”, and I don’t mean a Paxlovid rebound. When the market began to really embrace the virus – although most governments did not – on Valentine’s Day 2020, investors unleashed a flood of sales that sent the S&P 500 32% reduction in five weeks.

At that level around 2,305 S&P – one week after most cities, states and countries around the world closed their schools, courtrooms, offices, restaurants, shops, arenas and airports, but before any we wonder what the human toll of Covid would be. to be – soon the market began to reverse course and take.

A steady climb, then back to Earth

With only minor breaks, the S&P went up steadily for 21 months. The index doubled from its March 2020 trough, and advanced 40% from its previous high in February 2020. Whether the market was fueled by unbridled optimism about potential vaccines, it was sure that a shutdown could not last that long or without the economic damage caused. the pandemic, he went up with great determination.

This trend continued unabated through shutdowns, re-openings, vaccine development and approvals, highly motivated checks and 1 million Covid deaths across the U.S. The Halo remained in place until the end of 2021. At that point, exhausted from being caught uphill for a long time, the S&P ended its run at 4,766, more than double the threshold of 2,305 in March 2020.

However, the market is not in the habit of giving something for nothing, and the 100% gain may have depended on factors that could not be achieved. Policy makers had no experience with pandemics. This meant that they were more likely to design and execute the right-sized stimulus and rescue plans for citizens, companies and institutions, as well as managing the monetary strategy closely.

If the market was expecting continued growth – or at worst, a soft landing – the massive infusion of cash into people’s pockets, combined with supply chains eroded by Covid, was destined for prices to push to the moon. That inflation is what triggered the aftershocks of the earthquake. Unfortunately, those assumptions were too rosy for the market. Revenge of Covid pulled stock prices back to Earth.

A possible nightout in sight

For the week ended September 21, across the NYSE listings of stocks with market capitalizations over $3 billion, 386 stocks were down more than 40% from their 52-week highs. About 220 stocks fell more than 50%, and 122 fell more than 60%.

The IS ARK Innovation ETF, the most famous gathering of high-growth tech companies in the hottest sectors of software, cloud computing and more, has lost about 70% from its peak in 2021. That’s revenge on the one-level cohort of Covid-minted investors. money they weren’t spending on trips and restaurants into funds and stocks on their favorite trading platform. The market taught them what happens when you fail to consider the possibility that interest rates will rise above zero, which would devalue a dollar earned many years into the future.

The pain has permeated global markets and is seeping into the world’s economies. At its peak, the S&P was up 41% from pre-Covid highs. Now, we are about 6% above that level of 3,380 as of September 30th. How’s that for revenge?

Now we have to get to the bottom. There may be several signs that the switchblade is getting sharper. Some of the worst names in the S&P in the last year and a half, for example PayPal and Netflixthey have been so washed out that they have outperformed the market in recent months.

The price-to-earnings multiple of the S&P 500, which was 21.5 times the trailing twelve months at the start of this year, is now 16 2023 estimates, assuming little to no growth. With the bearishness so prominent we can hear it jumping from every screen, we need to be within sight of the levels where those intrepid buyers will not be retaliated against.

Karen Firestone is the chairman, CEO and co-founder of Aureus Asset Management, an investment firm dedicated to providing contemporary asset management to families, individuals and institutions.

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