Date: November 22, 2021

A 30-50% Collapse?

Greetings from the left coast where I am in the process of traveling home from a mystical and magical week at Pebble Beach with friends. Having not been there for 31 years, I was at a loss for words to describe how amazing it felt to be back at the greatest golf resort on earth, not to mention playing golf with and socializing with a good number of PGA and LPGA pros. If only my golf game cooperated!

Looking back at last week the Dow Industrials and Russell 2000 took it on the chin, but there wasn’t much conviction behind the move lower. One of my online industry groups shared a video of an analyst calling for THE top of the entire bull market. He opines and pounds the table that an epic 30-50% collapse has started.He sounded so convincing that I looked for other videos he did. You know what I found? That same guy has been calling for THE top for months and months and years and years. In fact, I saw a quick clip from September where he showed the same data as this past weekend calling for the end.

I searched for other videos like this and found a veritable cornucopia of pundits calling for the end of the world. They do an absolutely great job of trying to scare the heck out of investors into buying their crummy newsletter. As you know, anyone and everyone can write a newsletter, revise history and fancy themself as a master of the universe. It’s so much more difficult to manage real money on behalf of clients and be accountable.

Pundits love to make super bold and outrageous calls. They do that over and over and over. And I am prone to it sometimes too to be fair. So many revise history or come down with call amnesia that it becomes a joke. Media latch on. Always use the data at hand.

Anyway, sorry for the sidetrack. The Russell small caps have pulled back 4%+ and there is a chorus of doomsday’ers warning of impending collapse. While they may be right some day, I do not think today is that day. Below you can see the weakness on the far right side of the chart where it’s mostly red. That doesn’t look so hot, does it?

Now, let’s take a longer view of the same Russell 2000 index of small companies below. As I discussed a month ago, after the index broke out from its yearlong sideways movement, I said it would likely run higher and then come back down to the blue line that was the line in the sand since March. And here we are.

Let’s remember that the blue line isn’t absolute. It’s more like a pillow top mattress that price sinks into to find some support. Not only in my view, but in our appropriate portfolios, we own the index and my plan is to add more opportunistically.

As I am finishing this up, President Biden just renominated Jay Powell as Fed Chair. Stocks will likely react positively, not because Powell is so wonderful, but because he a known quantity to the markets and his renomination removes another uncertainty chip. More on this in an upcoming video.

Monday is supposed to be a good day for the bulls and we should see bouncebacks in smalls caps and economically sensitive sectors like banks, energy, materials and industrials which got hit a bit last week.

The bull market ain’t over.

Remember, markets are closed on Thursday and Friday is a half day.


Paul Schatz, President, Heritage Capital