Has the Bear Market Started Yet?

Dear Reader,

This is Dylan Jovine with Behind the Markets.

Happy Thursday.

Today is Thursday, July 9th.

I read a great little report this morning from Turning Point Market Research that stopped me in my tracks.

Over half of all tech stocks are already in a bear market.

59% of S&P 500 tech stocks are now trading at least 20% below their 252-day highs.

You can feel it.

But seeing it in black and white is something else.

What This Looks Like Underneath the Surface

The S&P 500 information technology index has dropped 8.4% since June.

We talked earlier this week about chips becoming 20% of the S&P 500 — a serious warning sign in my experience.

When one sector doubles its normal share of the index, that's not sustainable.

I remember 2006 and 2007 very clearly.

Banks had made so much money writing mortgages that financials ballooned to 20% of the S&P 500.

We all know what happened next.

The same distortion is happening now with chips and memory stocks.

People forget Micron is a highly cyclical business.

They forget it holds maybe 7% market share against Samsung and SK Hynix from Korea.

And they forget that when valuations get this stretched, companies come out of the woodwork to take advantage.

In the past 60 days, AOL — yes, that AOL, the dial-up service — went public again under a new name.

Somebody bought that rump of a business and brought it public.

That's how expensive this market is.

SK Hynix, one of the biggest memory companies in the world, just did a US offering because they want a piece of these valuations too.

When everyone's rushing to sell stock at your prices, that's a signal.

I Haven't Called a Bear Market

Let me be clear about something.

I have said the real bear market won't start until the Mag Seven and the hyperscalers stop spending.

That hasn't happened yet.

The minute it does, I'll tell you.

But what we are seeing is a very healthy sell-off in a crowded trade.

That's why we've been selling the past few weeks — locking in gains while buyers were still there.

AMD at 183%.

ASML at 142%.

FormFactor at 150%.

You sell when there's a bidding war, not when there's crickets.

What Comes Next

Here's what I'm watching now.

Microsoft is sitting around $380 a share.

In my view it's worth at least $500.

Their production and business processes unit runs 60% operating margins.

Intelligent cloud runs 40%.

Personal computing runs 30%.

This is a business that prints money.

At $380 it's starting to look interesting.

We also have great opportunities in energy and geothermal that we've been positioning in and will be bringing to you very soon.

I feel like we've set ourselves up well for this moment.

The Playbook

For those of you who've been around since 2018, you know that market sell-offs get me excited.

Things go on sale.

Here's the four-step playbook I always go back to.

One: sell your most speculative positions.

Two: push that cash into money market funds like the Schwab or Vanguard money market.

Three: write up a shopping list of companies you've always loved but thought were too expensive.

Four: get ready to pounce.

I wouldn't quite call this a July 4th sale yet.

But I'm starting to lick my chops.

Sharpen your knives.

Have a wonderful day.

I'll see you tomorrow.

“The Buck Stops Here,”