8 ms·

Man, it sure seems like the fed announcement yesterday spooked a lot of tech companies, eh? The thing I don't get is that the federal funds rate was also being

Man, it sure seems like the fed announcement yesterday spooked a lot of tech companies, eh? The thing I don't get is that the federal funds rate was also being raised in the mid 2010s, yet there was no corporate freakouts: https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS Is the root cause of this really just overhiring during the pandemic? Or is there something else at play here?

MuffinFlavored 4y ago
How much more pain do you think the S&P500 is in for over the next 12-24 months given the current "macro" landscape? If tech companies miss earnings again when they report for Q4, do they have another 10-20% drop left in them again?
- denimnerd42 4y ago
  we dropped 20% just on interest rates. i'm counting for at least another 20% across the board when earnings miss everywhere.
  - MuffinFlavored 4y ago
    S&P500 3700 (current levels) * 0.8 (another 20% drop) = 2960 Interesting prediction.
    - denimnerd42 4y ago
      so like q1/q2 2019? wouldn't be surprised I guess.
      - MuffinFlavored 4y ago
        You don't think companies have grown at all/become more profitable from 2019 -> 2022?
        denimnerd42 4y ago
        i don't think the low point is at all correlated to actual economic conditions. just fear
        MuffinFlavored 4y ago
        fear of projected/expected/hypothetical economic conditions though, so they are kind of related? like i totally agree, i can understand the basic math between "equities are worth more when corporations can finance their projects/growth cheaper (0-2%) than at 4-6%" the less money corporations stand to make, the less profitable they are, they less they are worth, the less premium investors want to pay for exposure to their hypothetical earnings yields, etc. etc. but some stat somewhere said "it's not as simple as exiting the market and waiting for the fed to do QE again" (don't fight the fed) equities can still "price in", digest, and "go up" during fed monetary policy tightening cycle. i think i read it's happened 9 out of 14 times previously. not sure the truth behind it/wish i could remember the source.
        anotherman554 4y ago
        Stock price is not an objective measurement of whether companies grow or become profitable. Part of the price is determined by investor emotions. This is why the price to earnings ratio that investors are willing to put up with fluctuates.
        MuffinFlavored 4y ago
        > Part of the price is determined by investor emotions. how many investors actively manage their portfolios and do so with their emotions (despite statistical evidence saying you should do neither if you want the best returns)? enough to actually move the markets? what does that look like in a more zoomed in view? 1,000,000 americans logging in every day/week/month/quarter and rebalancing their 401k/IRA/brokerage accounts? realizing losses by selling?
        anotherman554 4y ago
  - deleted 4y ago
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- adam_arthur 4y ago
  Next years S&P earnings around 200, with a 13x multiple at a bear market panic sell off bottom would put us at 2600. 15x at 3000 Pretty realistic if the recession gets bad. Current estimates for the S&P predict earnings growth even though there’s a very clear recession on the horizon, likely deep. Anyway, lots of cheap stocks out there now if you avoid the index. Still too many absurdly overvalued constituents like Chipotle and Costco (40-50x trailing PE, just why)
  - MuffinFlavored 4y ago
    > Next years S&P earnings around 200 My biggest concern is, while I agree with you that S&P 2023 EPS TTM could end up being $200, because we have not yet seen this reflected in estimates (Yardeni earnings forecasts shows $235 as an estimate), we have more room to fall before the expectation (let alone the reality) of that is priced in. $235 Yarendi expectation -> $200 your expectation is a 15% difference. That means analysts (and consequentially the market pricing in those analysts expectations) are "incorrectly" estimating earnings 15% higher than they might be in your opinion. Scary times.
    - adam_arthur 4y ago
      Analysts predicted ~10% earnings growth in 2008 and it turned out to be -70% Analysts by and large just extrapolate the trend. If there’s a severe recession, actual earnings could be 190 or even less. That being said, buying around 3500 or below seems a decent value long term. But I don’t think this is a market where you should wait, instead pick individual companies that are already too cheap and hold them. I bought a bunch of REITs with 6-8x ffo multiples, low debt, and double digit growth rates. Why bother with the 20x+ PE companies? There are also many small cap growth companies at 1-2x sales and 30%+ growth rates. Why buy one at 10x sales? IG bonds yielding 8% close to risk free? You’d think this would all be obvious, yet major imbalances in valuations exist and is there for the taking.
mint2 4y ago
My speculation from a non-financial expert view might be that as an average investor deciding where to put money, Amazon stock doesn’t seem like a good bet when there’s very low risk easy ways to get at least 4.5%. Maybe they are working on a way to show investors why they’d be a better investment. This is speculation, so would love any corrections or counter points.
- MuffinFlavored 4y ago
  > Amazon stock doesn’t seem like a good bet read enough doomsday social media material and you'll be convinced you should lock your money into treasuries at 4% instead of equities all together (any stock, including index/mutual funds)
- nly 4y ago
  When was the last time Amazon issued new shares to raise funds? The stock market is a secondary market. You or me buying shares doesn't effect Amazon at all. They don't get a penny of your money when you buy shares
theCrowing 4y ago
I believe a lot of corps got spooked when the first announcement were made and they started to look into their labor pools and saw that they are highly inefficient. If your products are mostly software based it's easy to scale back if you do production or engineering (other than software) it's not that's why you see companies like Apple or Tesla not scaling back as much as the rest.
- MuffinFlavored 4y ago
  > saw that they are highly inefficient. source?
  - type-r 4y ago
    > I believe
selfmodruntime 4y ago
I'm not thrilled to be in the unfortunate position of finishing my degree early next year. Good luck to all new job seekers if hiring freezes and layoffs continue at the current pace.
- emodendroket 4y ago
  Hang in there. I graduated in 2010 and not set up with a CS degree but I found my way eventually. And as rough as the market looks, people are still hiring... you may not be able to get into a top tier employer right away but I think your odds of finding employment of some kind are still good.
happyopossum 4y ago
> The thing I don't get is that the federal funds rate was also being raised in the mid 2010s, yet there was no corporate freakouts Look at the chart you linked to - the fed raised rates from effectively 0 to ~2.4% over 3+ years from 2016-2019. That has absolutely nothing in common with what's happening right now, where the fed went from 0.3 in April to ~3% today.
adam_arthur 4y ago
Starting valuations were much higher this time, and the rate increases were significantly faster. It’s actually the fastest fed tightening ever, from a percentage change perspective. Weren’t many 100x sales companies in 2015. Even after the recent carnage there are still many 10-40x sales companies, which is pretty much unjustifiable with a 4.5% risk free rate
- MuffinFlavored 4y ago
  > Even after the recent carnage there are still many 10-40x sales companies, which is pretty much unjustifiable with a 4.5% risk free rate so you are saying from a valuation perspective, we have more room to fall?
  - adam_arthur 4y ago
    Some stocks, yes. Things like DASH which have high sales multiples relative to what a realistic margin is for them long term. Or software stocks like NET that are still over 10x sales, without a sufficiently commensurate growth rate to justify it. A company with a 20x PE implies a 5% yield this year. I can get 5% on a AAA bond effectively risk free, or 4.5% on a treasury absolutely risk free. There is close to 0 fundamental justification for a lot of tech stocks still. CMG with 50 PE implies a 2% yield. Why? What logic is there to justify this? You can invent some story about 20 years from now, or I can take a guaranteed return that’s many times higher today. Some stocks are very fairly valued though, valuations are all over the place right now and not consistent within sectors. Should Apple really have twice the valuation multiple as Google? Not in my opinion
    - MuffinFlavored 4y ago
      > A company with a 20x PE implies a 5% yield this year. Isn't this kind of a useless stat? https://www.slickcharts.com/sp500/returns https://www.slickcharts.com/sp500/returns https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio the market typically doesn't follow this "this P/E must yield this much return" rule from what I can tell. We've had many many many 8-10%+ ROI years despite whatever the "this P/E implies this much yield/return" rule dictates.

MuffinFlavored 4y ago

How much more pain do you think the S&P500 is in for over the next 12-24 months given the current "macro" landscape? If tech companies miss earnings again when they report for Q4, do they have another 10-20% drop left in them again?

denimnerd42 4y ago
we dropped 20% just on interest rates. i'm counting for at least another 20% across the board when earnings miss everywhere.
- MuffinFlavored 4y ago
  S&P500 3700 (current levels) * 0.8 (another 20% drop) = 2960 Interesting prediction.
  - denimnerd42 4y ago
    so like q1/q2 2019? wouldn't be surprised I guess.
    - MuffinFlavored 4y ago
      You don't think companies have grown at all/become more profitable from 2019 -> 2022?
      - denimnerd42 4y ago
        i don't think the low point is at all correlated to actual economic conditions. just fear
        MuffinFlavored 4y ago
        fear of projected/expected/hypothetical economic conditions though, so they are kind of related? like i totally agree, i can understand the basic math between "equities are worth more when corporations can finance their projects/growth cheaper (0-2%) than at 4-6%" the less money corporations stand to make, the less profitable they are, they less they are worth, the less premium investors want to pay for exposure to their hypothetical earnings yields, etc. etc. but some stat somewhere said "it's not as simple as exiting the market and waiting for the fed to do QE again" (don't fight the fed) equities can still "price in", digest, and "go up" during fed monetary policy tightening cycle. i think i read it's happened 9 out of 14 times previously. not sure the truth behind it/wish i could remember the source.
      - anotherman554 4y ago
        Stock price is not an objective measurement of whether companies grow or become profitable. Part of the price is determined by investor emotions. This is why the price to earnings ratio that investors are willing to put up with fluctuates.
        MuffinFlavored 4y ago
        > Part of the price is determined by investor emotions. how many investors actively manage their portfolios and do so with their emotions (despite statistical evidence saying you should do neither if you want the best returns)? enough to actually move the markets? what does that look like in a more zoomed in view? 1,000,000 americans logging in every day/week/month/quarter and rebalancing their 401k/IRA/brokerage accounts? realizing losses by selling?
        anotherman554 4y ago
- deleted 4y ago
  [deleted]
adam_arthur 4y ago
Next years S&P earnings around 200, with a 13x multiple at a bear market panic sell off bottom would put us at 2600. 15x at 3000 Pretty realistic if the recession gets bad. Current estimates for the S&P predict earnings growth even though there’s a very clear recession on the horizon, likely deep. Anyway, lots of cheap stocks out there now if you avoid the index. Still too many absurdly overvalued constituents like Chipotle and Costco (40-50x trailing PE, just why)
- MuffinFlavored 4y ago
  > Next years S&P earnings around 200 My biggest concern is, while I agree with you that S&P 2023 EPS TTM could end up being $200, because we have not yet seen this reflected in estimates (Yardeni earnings forecasts shows $235 as an estimate), we have more room to fall before the expectation (let alone the reality) of that is priced in. $235 Yarendi expectation -> $200 your expectation is a 15% difference. That means analysts (and consequentially the market pricing in those analysts expectations) are "incorrectly" estimating earnings 15% higher than they might be in your opinion. Scary times.
  - adam_arthur 4y ago
    Analysts predicted ~10% earnings growth in 2008 and it turned out to be -70% Analysts by and large just extrapolate the trend. If there’s a severe recession, actual earnings could be 190 or even less. That being said, buying around 3500 or below seems a decent value long term. But I don’t think this is a market where you should wait, instead pick individual companies that are already too cheap and hold them. I bought a bunch of REITs with 6-8x ffo multiples, low debt, and double digit growth rates. Why bother with the 20x+ PE companies? There are also many small cap growth companies at 1-2x sales and 30%+ growth rates. Why buy one at 10x sales? IG bonds yielding 8% close to risk free? You’d think this would all be obvious, yet major imbalances in valuations exist and is there for the taking.

mint2 4y ago

My speculation from a non-financial expert view might be that as an average investor deciding where to put money, Amazon stock doesn’t seem like a good bet when there’s very low risk easy ways to get at least 4.5%. Maybe they are working on a way to show investors why they’d be a better investment. This is speculation, so would love any corrections or counter points.

MuffinFlavored 4y ago
> Amazon stock doesn’t seem like a good bet read enough doomsday social media material and you'll be convinced you should lock your money into treasuries at 4% instead of equities all together (any stock, including index/mutual funds)
nly 4y ago
When was the last time Amazon issued new shares to raise funds? The stock market is a secondary market. You or me buying shares doesn't effect Amazon at all. They don't get a penny of your money when you buy shares

theCrowing 4y ago

I believe a lot of corps got spooked when the first announcement were made and they started to look into their labor pools and saw that they are highly inefficient. If your products are mostly software based it's easy to scale back if you do production or engineering (other than software) it's not that's why you see companies like Apple or Tesla not scaling back as much as the rest.

MuffinFlavored 4y ago
> saw that they are highly inefficient. source?
- type-r 4y ago
  > I believe

selfmodruntime 4y ago

I'm not thrilled to be in the unfortunate position of finishing my degree early next year. Good luck to all new job seekers if hiring freezes and layoffs continue at the current pace.

emodendroket 4y ago
Hang in there. I graduated in 2010 and not set up with a CS degree but I found my way eventually. And as rough as the market looks, people are still hiring... you may not be able to get into a top tier employer right away but I think your odds of finding employment of some kind are still good.

happyopossum 4y ago

> The thing I don't get is that the federal funds rate was also being raised in the mid 2010s, yet there was no corporate freakouts Look at the chart you linked to - the fed raised rates from effectively 0 to ~2.4% over 3+ years from 2016-2019. That has absolutely nothing in common with what's happening right now, where the fed went from 0.3 in April to ~3% today.

adam_arthur 4y ago

Starting valuations were much higher this time, and the rate increases were significantly faster. It’s actually the fastest fed tightening ever, from a percentage change perspective. Weren’t many 100x sales companies in 2015. Even after the recent carnage there are still many 10-40x sales companies, which is pretty much unjustifiable with a 4.5% risk free rate

MuffinFlavored 4y ago
> Even after the recent carnage there are still many 10-40x sales companies, which is pretty much unjustifiable with a 4.5% risk free rate so you are saying from a valuation perspective, we have more room to fall?
- adam_arthur 4y ago
  Some stocks, yes. Things like DASH which have high sales multiples relative to what a realistic margin is for them long term. Or software stocks like NET that are still over 10x sales, without a sufficiently commensurate growth rate to justify it. A company with a 20x PE implies a 5% yield this year. I can get 5% on a AAA bond effectively risk free, or 4.5% on a treasury absolutely risk free. There is close to 0 fundamental justification for a lot of tech stocks still. CMG with 50 PE implies a 2% yield. Why? What logic is there to justify this? You can invent some story about 20 years from now, or I can take a guaranteed return that’s many times higher today. Some stocks are very fairly valued though, valuations are all over the place right now and not consistent within sectors. Should Apple really have twice the valuation multiple as Google? Not in my opinion
  - MuffinFlavored 4y ago
    > A company with a 20x PE implies a 5% yield this year. Isn't this kind of a useless stat? https://www.slickcharts.com/sp500/returns https://www.slickcharts.com/sp500/returns https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio the market typically doesn't follow this "this P/E must yield this much return" rule from what I can tell. We've had many many many 8-10%+ ROI years despite whatever the "this P/E implies this much yield/return" rule dictates.