The tech-heavy Nasdaq Composite Index on Thursday pulled back to a two-year low amid selling in stocks, including Apple Inc. AAPL and Tesla Inc. TSLA.
What Happened: Noted Apple and Tesla analyst Gene Munster took to Twitter on Thursday to offer his take on the current market malaise. He advised his followers not to overthink it.
“It’s been a first-order market all year. 2008 was the same way in that there was a pending housing crisis and it came,” he said.
Munster was referring to the 2007-08 global financial crisis that had its root in the housing market collapse. The market plunged amid the recession that ensued but bottomed in early 2019 before taking off. A broader uptrend was in play until the current down-leg began in November 2021.
The Loup Funds managing partner said the obvious that had to happen has come to a pass, noting that the Fed had to hike rates to combat inflation, which it did this year.
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End At Sight For Sell-Off? While predicting when the sell-off is likely to end, Munster said the consumer price inflation should drop below 4% before the market “gets comfortable” that it is on its way to 2-3%.
One of the twin objectives of the Fed while framing its monetary policy is keeping inflation at 2% over the long run.
While noting that the Fed expects inflation to cool off to 4% by next spring, Munster said the 4% mark will likely be hit later this year or early next year.
“Bottom line: Sad to report, likely more downside in the months ahead,” he added.
The equity market has been on a downward spiral all through the year, as multiple headwinds weigh down. Given the looming uncertainty and limited visibility, analysts have found it hard to predict the bottom.
The tech and small-cap spaces have led the current sell-off. Apple, which was holding up better than several of its big-tech peers, has come under selling pressure this week due to iPhone demand worries.
Snap Inc. SNAP has been on a freefall this year, with concerns regarding a slowdown in ad spending weighing on the stock. The Snapchat parent’s shares are down about 80% year-to-date.
Chip majors, including Intel Corporation INTC, Nvidia Corporation NVDA and Advanced Micro Devices Inc. AMD, are all down about 50% each, reflecting soft demand and the China chip ban.
Munster’s prediction may not be way too off the mark. Macroeconomic fundamentals need to stabilize for a pickup in consumer and business sentiment — a prerequisite for a recovery in demand growth.
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