New Year, new hangover. So far, the January effect is exerting the reverse impact it has on markets traditionally. It used to mean that stocks were sold in December to harvest tax losses, which led to a bounce in January. Now the January effect refers to the proclivity of investors, gamblers, and bots to corner the stock market in December and drive it to new glue sniffing highs, only to watch it implode in January.
This was now officially the third MASSIVE pump and dump in so many years. It's abundantly clear that investors and pundits are not even remotely aware when they are merely going along for the social mood roller coaster ride. Like market clowns, they are happy on the way up and sad on the way down.
ZERO emotional control.
Herein lies the problem with this latest pump and dump hangover: Big Cap Tech was the last part of the Tech market to actually reach new highs and they did so while the Fed was RAISING rates, which is highly unusual. Normally Tech/growth stocks outperform in a deflationary environment, while cyclical stocks (Transports, Banks, Retail, Airlines) outperform in a reflationary environment. So it is that we enter 2024 with the deflationary growth sector massively overbought while Wall Street is now wildly trying to guess what sector(s) will take over "leadership" from the largest and by far most over-owned sector of the market. Unfortunately, in a presumed rate cutting deflationary environment, that leaves really only late cyclicals such as Energy which is just starting to outperform even as oil collapses, and of course healthcare/pharma aka. recession stocks.
Which happen to be FOUR years overbought on new year momentum. All the way back to the pandemonium.
It's now a consensus on Wall Street that Tech stocks are dead and leadership will soon emerge from other sectors. Once Cramer jumps on board you have to know that every hedge fund is already ALL IN this new theory:
Another headline from this week:
Then there's this gem in the text:
“Crowding risk in the leaders of 2023 has been cited by many (including ourselves) as a key risk in 2024,” Bank of America Corp. strategists led by Savita Subramanian wrote in a note. A “January rout in megacap tech is now consensus.”
How can it be BOTH a consensus rout AND a crowded trade? Do these money managers believe their own positions are about to implode? Maybe they're trapped by the 2023 end of year pump and dump and they just realized it when they filled out the BofA survey.
Q: Are you trapped in a consensus of idiots?
A: Holy fuck!
It's times like these when it's useful to time travel back two years to the last time the January effect imploded Tech stocks amid rising bond yields and see what people were saying back then about the prospects for a broadening rally:
Two years ago:
January 5th, 2022:
"Thanks to the new-year bond selloff, Wall Street pros are doubling down on a big stock call for 2022: The leadership of high-growth tech darlings is no more"
And they were right. There was a rotation out of Tech into a broad-based bear market. See first chart above.
Finally, here is where it gets interesting: way back in Y2K, two years after the average stock peaked, Big Cap Tech peaked and exploded.
And yes, as we see below the broader market imploded as well.
Very much to the surprise of everyone on Wall Street.
