For a baseline, let’s look over our shoulder to 2020 and remember the level of fear investors were feeling as the world started to close down due to Covid.
In round numbers, the valuations of Corporate America have increased between 85% - 100% depending on what measuring stick you choose to look at. For today, let’s just agree we saw valuations come up like a rocket ship.
So, it would be fair to assume “fear of investing” has left the building, but you would be wrong!
Here are the same charts for May 2022:
Conclusion: Mr. and Mrs. 401(k) are beyond fear to whatever level is below fear, perhaps “petrified”!
Guess who is not petrified, but instead writing checks, very large amounts (think hundreds of billions of dollars)? The “insiders”! These are the collective leadership of Corporate America. The people who see all the money moving in and around their collective businesses. Thousands of floors of MBA’s, CPA’s and attorneys.
Here is the “Insider Transaction Ratio” chart that reports net buys versus net sells. Notice the numbers in small writing below the chart where there are 5 times more buying than selling.
Perhaps more important is that YTD 2022 Corporate America has authorized over $400 billion in stock buybacks. The highest since this data flow started in 2006. (Source: yardiniresearch.com)
Unfortunately, as of May 26, 2022, the S&P 500 is down 16.50% YTD, the worst start since 1970. This is the fourth worst start in history. Only 1932, 1940 and 1970 were worse. (Source: LPL Research 5/26/2022)
The good news is that after these worst starts, all saw gains for the rest of the year with an average bounce back of +19.1%.
To me, this data suggests Mr. and Mrs. 401(k) are petrified, but have not sold “all”, and will need to before we hit a capitulation point. Corporate America will be in the wings, as always, to take the shares of ownership off their hands on the cheap.
The volatility is not over. Could get worse and then we could experience an equally volatile updraft. It is going to be a long, hot and tough summer, I think.
I’m interested in your thoughts, comments and observations. Feel welcome to call, email or stop by the office and say Hi.
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. No strategy assures success or protects against loss.