The last high of the SP500 index was 4796.56 on the 3rd of January this year, while the lowest point so far is 4326.51 on the 27th in the same month. It took only 24 days to drop 9.8 percent. SP500 index was at the closet low of about 4300 points was on the 4th of October, which was 3 month ago.
Some people blame the market downturn to the very likely rate hikes in the near future and the tension between Russia and Ukrain.
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Changes of Asset Prices from the Height on January 3rd to the Bottom on January 27th
- The SP500 has dropped 9.8%, from 4796.56 to 4326.51.
- Dow Jones Industrial Average has dropped 7.1%, from 36585.06 to 34160.78.
- Nasdaq Composite has dropped 18.6%, from 15832.80 to 13352.78.
- 10 Year Treasure Bond Yield has risen 1.66% from 1.637% to 1.803%,.
- Shares 7-10 Year Treasury Bond ETF has lost in value of 1.4% from $113.93 to $112.31.
- Gold per ounce has droped 0.3% from $1800.10 to $1793.86.
- West Texas Intermediate crude oil per barrel has risin 13.8% from 76.08 to 86.61.
Comparisoni to the last rate hikes
The Fed raised rates was on December 14, 2015, releted assets value changes
are bellow:
- It took the SP500 index about 2 months to drop 9.5% from 2021.94 to 1829.08 on 2016/2/11.
- 10 Year Treasure Bond Yield dropped 0.561% from 2.225% to 1.664%, showing investors priced in rate hikes before rates were actually raised, causing it to drop on the date it got raised.
Comparison to the previous Geopolitical tensions.
2014 Annexation of Crimea by the Russian Federation: the SP500 index dropped
5.9% from 1843.80 on 2014/1/21 to 1741.89 on 2014/2/3, which I don't hink was
due to this particular evernt, since the 2014 Crimea Crises happens around
February.
The 911 event did not seem to contribute to the market turmoil, since the 2000
recession is a composite circumstance.
Investment Opportunities
The Nasdaq Composite dropped the most with a current PE ratio of 28.95,
howevert still higher than the one of SP500 of 24.80. PE ratio-wise, SP500
index ETFs are still better than QQQ. On 2022/1/18 major index component stock
PE ratios:
- Apple PE ratio: 27.69.
- Microsoft PE ratio: 30.66.
- Meta PE ratio:14.94.
- Alphabet PE ratio: 23.24.
- Amazon PE ratio: 46.99.
- Tesla PE ratio: 178.85.
- Berkshire Hathaway: 8.51.
Conclusion
The current market turmoil bottomed the SP500 index in 24 days, which may be
too short in the probability sense. This means the stock may still drop in the
near future.
The geopolitical event in East Europe may be ongoing for long enough until
investors find it is just a new norm, then it will not have a long term effect
on the stock market.
The Fed is almost certainly going to raise the Fed funds rates which may
already priced in the 10 year treasure yield and stock prices.
SP 500 has a PE ratio of 24.8 which may be too high, since the mean is 15.97
and the median is 14.88.
In my opinion, major US index companies have a 10, 20 and even 30 years growth
outlook, such as Apple AR glasses that may be a new comsumer electronics star,
the possible Microsot's CDN style gaming that is powered by fast cloud
computing and growing connectivity, growing number of internet users that may
contribute to subscribers of Netflix in emerging market.
So, I would hold on to SP 500 index funds, but at the same time expecting a
rough ride.
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