IDAT - Bear Market Playbook: Cash Patience And Vigilance

• On the surface, the correction has only started getting to the broad indices. Under the hood, the damage is deeper: 70% of S&P 500 stocks and 85% of NASDAQ stocks are below their 200-day moving averages.
• The Fed is raising rates and reducing liquidity by allowing assets on its balance sheet to roll off. Interest rates are the fundamental market-wide variable governing how much investors are willing to pay for a company on the basis of its earnings.
• As interest rates rise, that number, for the stock market taken as a whole, will fall. Layer in the anticipation of decelerating earnings or a potential recession, and the price contraction is even sharper.
• After the dust settles, Mr. Market will get sober and realize that certain companies were pushed down with the broad market to valuation levels too low for their fundamentals. Our job is to find these opportunities before Mr. Market’s moment of sobriety.

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