In order to have a bear market, or a correction of any kind, the prices of stocks need to fall.
That's just math.
But you know what hasn't happened? We really haven't seen the new lows list blowing up at all.
You would think that Monday would have seen a lot of new 52-week lows, considering the VIX practically tripled overnight, for the first time in the history of the stock market.
1) For long-term investors, this is what you want. Many of us have long-term accounts, retirement stuff, kids college funds, etc. This sort of market action is great for those types of accounts and strategies. And if you're a young investor, just getting going in this business, nothing could be better. Pay attention and take notes (you'll thank me later).
2) For more tactical portfolios, this sort of volatility provides new opportunities, that certainly did not exist in the low volatility regime that we've been in for so long. This is not the time to implement low volatility strategies. This is a time to benefit from the high volatility.
3) When shit hits the fan, just get smaller. Markets are moving fast, so you can get away with much much smaller position sizing in order to accomplish the same goals you had with a VIX at 10, just a month ago.
The rule of thumb for me is you take the VIX and divide it by 16. That gives you the expected % move for the market that day - particularly the S&P500.
Remember, over the short- to intermediate-term, stock prices don't move based on the fundamentals. They move up and down based on positioning, or in many cases, a lack of positioning.
When no one wanted Tech and mega-cap growth at the end of 2022, that was when Tech and mega-cap growth really got going.
Before that, when everyone wanted high growth Tech, Cathy Wood was the next Warren Buffett, and that's when Tech stopped working for a while - and is still not working in many of cases.
We saw historic underperformance from Technology stocks immediately after the sector reached the same levels it just reached last month.
Should we expect the same? In other words, should Tech keep underperforming, paving the way for other sectors like Financials, Industrials, Energy and Healthcare to outperform for a while?
Is that why the equally-weighted S&P500 just closed the month at new all-time highs? Because the largest weighting of the Market-cap weighted version is struggling to make any progress?
Here's Technology relative to the S&P500 getting back to those former highs from early 2000:
You may not like it. I know I certainly don't. But that's the world we've always lived in. And it's the world I would expect us to be in for a long long time.
The bond market is $130 Trillion. That's compared to a mere $50 Trillion US Stock Market. The total Global stock market is slightly over $100 Trillion, for perspective.