Caution: The Stock Market Has Been Playing Opposite Day for Months

When my youngest daughter was 3 years old, she walked up to me and said…

“Daddy, I don’t like you.”

My heart immediately broke.

My mind raced, trying to figure out what I had done to make this precious little person feel that way about me.

The look on her face told me she was pleased that her comment had impacted me.

Then she winked and whispered ever so quietly, “Don’t worry, Daddy. Today is opposite day.”

Whew. What a relief.

After that startling introduction, opposite day became a popular game in our household for a couple of years. It took me a while to get the hang of it. Once I did, I came to grow fond of my kids telling me that they didn’t think too highly of me.

In the game of opposite day, that rude statement meant they actually loved me…

The Stock Market Has Been Playing Opposite Day for Months

For a while now, I’ve been thinking that many U.S. investors must be in the middle of a serious game of opposite day.

When I look at the chart below that was tweeted by Jim Bianco of Bianco Research, I’m certain of it.

This chart depicts the Goldman Sachs Non-Profitable Technology Index, which is exactly what it sounds like. It is a constructed index of technology companies that don’t turn a penny of profits.

After going nowhere from inception in 2014, this index of money losers has skyrocketed since the outbreak of COVID-19.

Pre-pandemic, the index was at 100. Since then, it is up 400%, now almost touching 400.

As a group, these companies do nothing but lose money. But apparently, right now in the stock market, losing equals winning…

Let Them Have Their Fun… We Will Benefit in the End

I suspect that in the coming weeks and months, the mantra I’m going to be repeating is “patience.”

There is no question in my mind that with the S&P 500 at all-time highs and crazy investor behavior everywhere you look, patience is essential.

Do not get sucked into speculative behavior that puts your hard-earned money at risk.

The surging Goldman Sachs Non-Profitable Technology Index is yet another sign that speculation is rampant in the market today.

We’ve seen the signs of investor speculation getting out of control with Tesla (Nasdaq: TSLA), with GameStop (NYSE: GME) and with a shocking increase in call option activity.

As investors who are focused on building wealth, we can’t compromise our long-term goals with risks like these.

We need to remember that over time, what matters to stock market performance is earnings.

There is a reason that the historical stock market performance over many decades is roughly a 10% annualized rate of return…

This is the cumulative rate at which the earnings of companies in the stock market grow their value over time.

With no earnings, there is nothing holding up the stock prices of the speculative companies that you see in that soaring Goldman Sachs index.

These stocks have been bid up purely on speculation.

When that speculation fever ends (as it always does), the downside in these types of companies will be massive.

The good news is that while much of the money in the market is flowing into speculative areas, it creates opportunities elsewhere…

Opportunities that carry much less risk and offer significant long-term rewards.

By using patience and conserving our cash for the right opportunities, we will continue to find and exploit them.

Good investing,

— Jody

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Source: Wealthy Retirement