The momentum stock bubble burst last week, with highflying stocks showing significant declines from their February/March highs:
- brokerage stocks: -10.8% (high set on March 20)
- housing stocks: -9.4% (February 27)
- Internet stocks: -17.1% (March 4)
- biotechnology stocks: -21.1% (February 25)
- Tesla Motors: -20.0% (March 4)
- Netflix: -28.2% (March 4)
- Twitter: -45.4% (December 26)
- 3D Systems: -50.1% (January 3)
Yet a brief scanning of the financial headlines shows little concern:
- MarketWatch.com – “Stocks fall as volume rises, but here’s why not to worry”
- The Wall Street Journal – “Stock-Market Jitters Put Investors at Ease; Recent Turbulence Is Seen as a Healthy Sign”
- CNBC – “Last week’s big selloff ‘probably over': Pro”
- MarketWatch.com – “Don’t let these stock market gyrations scare you; It’s likely that we’ve seen the end of recent declines”
The common theme among pundits is that the momentum bust is isolated, contained, healthy, and even predictable. CNBC quoted Jonathan Golub, chief U.S. market strategist at RBC Capital:
“I think the selloff is probably over. If you look at the economically sensitive stuff in the market, it’s not really selling off. It’s tech. It’s bio-tech [which makes up about 10 percent of the market.] The other 85 to 90 percent is in perfectly fine shape.
This weekend Barron’s patted itself on the back for predicting the tech bust several months ago:
In November, when pundits began to natter about a stock market bubble, we pointed out in a prescient cover story that it was a tech bubble, not a market bubble. Our advice has paid off handsomely.
Barron’s quoted perma-bull Jim Paulsen, chief investment strategist at Wells Capital Management:
My guess here is that we’re having a valuation adjustment in one small part of the market, in the highflying momentum stocks that got ahead of themselves and are now correcting. I think this is more of a buying opportunity.
The article concluded:
All this suggests that despite some ominous headlines, the stock market’s health is still good. [emphasis added]
Where are the ominous headlines? We don’t see any. We see complacency as far as the eye can see with the assuredness that the momentum stock bust is “contained.” We heard these same words in April, 2000 after the dot-com bust and March, 2007 after the subprime bust… early warning signs that were overwhelmingly ignored.