Calling the Bear: How Carter Braxton Worth Predicted the Market Drop and What Comes Next
In this episode of the Money Rehab podcast, Carter Braxton Worth provides his analysis and forecasts of the stock market downturn. Worth explains the warning signs he observed prior to the March 2023 selloff, including weakness in leading stocks and sectors diverging from major indices.
The conversation also covers defensive investment strategies to maintain portfolio stability during market volatility. Worth highlights sectors like consumer staples and insurance as potential safe havens. He shares his bearish outlook on specific stocks like Tesla, Meta, and Nvidia while favoring defensive insurance firms like Chubb and AIG.
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1-Page Summary
Market Analysis and Forecasting
Carter Braxton Worth provided insights into the market dynamics leading up to the March 2023 selloff.
Pre-Selloff Market Warnings
Worth noted that while large tech stocks boosted the S&P 500, the broader market showed weakness. Leading stocks like semiconductors and Microsoft peaked months before indices declined, signaling a reckoning.
Depth of Selloff
While the S&P 500 was down 12%, Worth declared a bear market, citing a 38% median decline across Russell 3000 stocks. He warned mega-caps' influence on indices can mislead, and predicted the S&P could reach 4800-5000.
Defensive Investment Strategies
Nicole Lapin and Carter Braxton Worth discussed defensive sectors for portfolio stability during volatility.
Defensive Outperformers
Consumer staples firms like Nabisco tend to maintain stability in downturns, per Lapin and Worth. Worth highlighted insurance stocks like Chubb as safe havens.
Growth vs. Defense
Worth cautioned against "buying the dip" in downtrend stocks, calling it disastrous. He advised sticking to researched convictions with a "strong hands" approach for long-term success.
Sector Trends and Stock Performance
Worth analyzed sector performance and provided stock guidance.
Struggling Sectors
Consumer discretionary and tech stocks faced major declines, with Tesla down 50% and Nike down 40% inflation-adjusted since 2015. Worth was bearish on Tesla, Meta, and Nvidia.
Insurance Opportunities
Worth favored stable insurance firms like Chubb, AIG and Berkshire, citing their defensive qualities. He stressed evaluating business models and recession resilience when considering insurance stocks.
1-Page Summary
Additional Materials
Counterarguments
- While large tech stocks often lead market trends, it's possible that other sectors could have underlying strengths that are not immediately apparent, and could offer investment opportunities even when tech is declining.
- The peaking of leading stocks like semiconductors and Microsoft before a broader decline might not always be a reliable indicator of a market selloff, as various factors can influence stock prices, and past patterns do not guarantee future outcomes.
- Declaring a bear market based on a 12% decline in the S&P 500 and a 38% median decline across Russell 3000 stocks could be premature, as market recoveries can occur unexpectedly, and bear market definitions can vary.
- The prediction that the S&P could reach 4800-5000 is speculative and subject to numerous variables, including economic data, geopolitical events, and market sentiment, which can change rapidly.
- While consumer staples and insurance stocks are traditionally seen as defensive, they can still be affected by market downturns and are not immune to company-specific risks or broader economic issues.
- The strategy of avoiding "buying the dip" may not be suitable for all investors, as some may have success with this approach if they are able to identify undervalued stocks that recover over time.
- A "strong hands" approach may not be optimal for all investors, especially if holding onto declining assets leads to significant losses that could have been mitigated by a more flexible strategy.
- Being bearish on specific companies like Tesla, Meta, and Nvidia may not account for their potential to innovate, adapt, and recover, which could lead to missed investment opportunities if these companies turn around.
- Favoring stable insurance firms does not guarantee safety, as the insurance industry can be impacted by catastrophic events, regulatory changes, and competitive pressures.
- Evaluating business models and recession resilience is important, but it is also crucial to consider the potential for growth and innovation within the insurance sector, which could affect stock performance.
Actionables
- Diversify your investment portfolio by including sectors known for stability, such as consumer staples and insurance. By doing this, you're not putting all your eggs in one basket, especially in volatile markets. For example, if you currently own mostly tech stocks, consider reallocating a portion of your investments to include companies like those in the food industry or insurance, which tend to be less sensitive to market downturns.
- Create a personal financial rule to only invest in stocks after thorough research, rather than impulse or trend-following. This means taking the time to understand a company's business model, its place in the industry, and its financial health. For instance, before buying shares of an insurance company, you might look at its claim payout ratio and compare it to industry averages to gauge its stability.
- Set up price alerts for stocks you're interested in but consider overvalued, to notify you if they fall to a more reasonable price. This can help you avoid the pitfalls of "buying the dip" without a strategy. Use a stock market app to track specific stocks like Tesla or Nike, and decide in advance the price point at which you'd be willing to consider purchasing, based on your own research and risk tolerance.
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Market Analysis and Forecasting
Carter Braxton Worth has provided keen insights into the stock market behavior preceding March 2023, helping to interpret the selloff and current market dynamics.
Carter Braxton Worth Predicted Pre-march 2023 Selloff Via Deteriorating Market Breadth and Early Stock Peaks
Large Tech Stocks Boost S&P 500, Mask Broader Market Weakness
Carter Braxton Worth observed the market dynamics that preceded the selloff, primarily focusing on the disproportionate effects large technology stocks have on the S&P 500 index. He noted that companies like Apple and Microsoft were performing well, which boosted the S&P 500 and masked the broader market's weakness.
Leading Stocks Decline Signals Broader Market Reckoning, Despite Index Highs
Worth also took note of the individual stock performances, with prominent players such as semiconductors peaking in July and Microsoft in August, which foreshadowed the market's potential downturn even before the broader S&P 500 index began to decline. The individual declines of leading stocks signaled a broader market reckoning was on the horizon, despite the S&P index not showing immediate declines.
S&P 500 Down 12%, Russell 3000 Median Stocks Down 38%, Signaling Bearish Phase
Mega-Cap Stocks' Outsized Influence on Indexes Can Mislead Market Health; Carter Warns Selloff Likely to Continue Beyond 12% Decline
At the end of February, Carter Braxton Worth declared, "It's official. We are in a bear market" following the market reaching all-time highs. The S&P 500 index was down only 12% at the time, but Worth pointed to a much steeper decline ...
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Market Analysis and Forecasting
Additional Materials
Clarifications
- Market breadth measures the participation of individual stocks in a market movement. It looks beyond just the performance of a few large companies to assess how many stocks are contributing to a market's direction. Strong market breadth indicates widespread participation and support for a market trend, while weak breadth suggests that only a few stocks are driving the market's movement. Monitoring market breadth can help investors gauge the overall health and sustainability of a market trend or rally.
- Large tech stocks like Apple and Microsoft can have a significant impact on the S&P 500 index due to their substantial market capitalization and influence. When these tech giants perform well, their positive performance can lift the overall S&P 500 index, even if other sectors or individual stocks are not performing as strongly. This can create a situation where the index appears strong, masking weaknesses in other areas of the market. Understanding the relationship between these large tech stocks and the S&P 500 index is crucial for interpreting overall market health and potential vulnerabilities.
- Leading stocks are individual stocks that are considered to be at the forefront of market movements due to their size, influence, or sector importance. These stocks are closely watched by investors and analysts as their performance can provide insights into broader market trends. When leading stocks start to decline or peak, it can signal potential shifts in market sentiment and serve as an early warning sign for broader market movements. Understanding the behavior of leading stocks is crucial for investors to gauge the overall health and direction of the market.
- The Russell 3000 index represents the performance of the 3000 largest publicly traded U.S. companies. The median stock performance within this index gives a snapshot of how the typical stock is faring, providing insight into the overall market health. A decline in the median stock performance ...
Counterarguments
- Market predictions are inherently uncertain, and even experienced analysts like Carter Braxton Worth can be subject to confirmation bias or hindsight bias when interpreting market events.
- The influence of large tech stocks on the S&P 500 is a known factor, and some might argue that it reflects the current economic reality where tech companies have a significant impact on the economy.
- Declines in leading stocks may not always signal a broader market downturn; they could also be the result of sector-specific issues or short-term market reactions.
- The S&P 500 and Russell 3000 are different indices with different constituents, and the performance of one does not necessarily dictate the performance of the other.
- While mega-cap stocks do have a significant influence on market indices, thes ...
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Defensive Investment Strategies
Nicole Lapin and Carter Braxton Worth discuss investment approaches that prioritize stability during uncertain economic times, emphasizing the advantage of defensive sectors.
Defensive Sectors Like Staples, Utilities, Insurance Outperform in Volatile Markets
Defensive sectors are holding their ground amid market volatility, offering possibilities for portfolio stability.
"Soap and Cereal" Firms Maintain Stability and Resist Recessions, Enduring Well In Downturns
Lapin and Worth point out that so-called "soap and cereal" firms represent essential commodities that continue to be purchased despite economic downturns. These companies, such as Nabisco, Colgate-Palmolive, and General Mills, showcase resilience and stability in the face of economic challenges. They manage to maintain their footing better than other sectors, as institutional managers often rotate into consumer staples and utilities as a defensive strategy.
Investors Seek a Safe Haven in Defensive Sectors
Worth also illuminates that insurance stocks, like Chubb and AIG, are inherently defensive and perform robustly during market upheavals. He views insurance as a safe haven for investors, as these stocks demonstrate strong performance in tumultuous markets.
Growth vs. Defensive Stocks: Stability vs. Upside Potential
Investors must weigh the stability of defensive stocks against the potential of growth stocks.
Carter Warns Against "Buying the Dip" In Downtrend Stocks, as It Can Be Disastrous
Carter warns against the common strategy of "buying the dip" during a downtrend, as it ca ...
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Defensive Investment Strategies
Additional Materials
Clarifications
- Defensive sectors in investing typically include industries that provide essential goods and services, like consumer staples, utilities, and insurance. These sectors tend to be less sensitive to economic cycles and often maintain stable performance during market downturns. Investors often turn to defensive sectors as a strategy to mitigate risk and seek stability in their portfolios during times of market volatility. Defensive stocks are characterized by their resilience and ability to withstand economic challenges, making them attractive options for investors looking to protect their investments in uncertain times.
- The "buying the dip" strategy involves purchasing stocks when their prices have dropped significantly, with the expectation that they will rebound in the future. This approach is based on the belief that the market has overreacted to negative news, leading to a temporary decline in stock prices. Investors using this strategy aim to capitalize on the opportunity to buy stocks at a lower price before they potentially increase in value again. However, it's important to note that this strategy can be risky, as stocks may continue to decline further instead of recovering.
- The "strong hands" approach in investing involves ...
Counterarguments
- Defensive sectors may outperform in volatile markets, but they can also underperform during bull markets when investors favor higher-growth sectors.
- While "soap and cereal" firms may resist recessions, they may also offer limited growth potential compared to technology or healthcare sectors, which can innovate and expand rapidly.
- Investors seeking safe havens in defensive sectors might miss out on the recovery and growth opportunities that often follow market downturns.
- The dichotomy between growth and defensive stocks is not always clear-cut; some companies may exhibit characteristics of both, and market conditions can change the dynamics between the two.
- "Buying the dip" can be a successful strategy if done judiciously an ...
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Sector-Specific Market Trends and Stock Performance
As Carter Braxton Worth analyzes the current market trends, he highlights the performance of various sectors and offers guidance on stock options in a fluctuating economic landscape.
Consumer Staples and Insurance Stable; Technology and Consumer Discretionary Hit
In a market characterized by volatility, consumer staples and utility sectors remain more stable while certain high-profile technology and consumer discretionary stocks face significant declines.
Stocks Decline: Tesla, Nvidia, Meta, Nike (Nike Down 40% Since 2015, Inflation-Adjusted)
Tesla's stock stands out with a staggering 50 percent loss in value, showing no progress in four years. Worth describes Tesla as bearish. Similarly, Nike has also encountered a downturn, losing approximately 40% of its value since 2015 when accounting for inflation. Other tech giants like Meta and Nvidia are also mentioned unfavorably, with a recommendation from Worth to avoid new buying in these stocks. Cater Worth reiterates the risks of investing in growth and momentum stocks that are currently in downtrends, voicing skepticism toward the conventional "buy low sell high" approach for these stock categories.
Insurance Stock Opportunities: Chubb, Aig, Berkshire Hathaway
Amidst the instability in technology and discretionary consumer markets, Worth points to a more defensive stance with certain insurance firms. Chubb and AIG receive Worth's praise for their defensive nature and commendable performance. He further notes Berkshire Hathaway as a pote ...
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Sector-Specific Market Trends and Stock Performance
Additional Materials
Counterarguments
- Stability in consumer staples and utilities may not always equate to the best investment opportunities; growth sectors, despite their volatility, can offer significant returns during economic recoveries.
- Declines in high-profile technology stocks like Tesla, Nvidia, and Meta could present buying opportunities if the companies have strong fundamentals and the potential for future growth.
- The loss in value of stocks like Tesla and Nike could be attributed to market cycles or temporary setbacks, and these companies might still have strong brand value and innovation potential that could lead to recovery.
- The "buy low sell high" strategy, while simplistic, can be effective in certain market conditions and should not be dismissed entirely if an investor has a long-term perspective and can identify undervalued stocks.
- Insurance stocks, while generally stable, can still be affected by catastrophic events or significant changes in regulation, which could impact their performance.
- Diversification within an insurance company's product offer ...
Actionables
- You can diversify your investment portfolio by exploring consumer staples and utility ETFs, which could provide more stability during market fluctuations. Look for exchange-traded funds (ETFs) that focus on these sectors, such as those tracking the Consumer Staples Select Sector SPDR Fund or the Utilities Select Sector SPDR Fund. By investing in these ETFs, you spread your risk across multiple companies within these sectors, which the podcast suggests are more stable.
- Consider setting up a Google Alert for news on insurance companies with strong fundamentals to stay informed about potential investment opportunities. Use keywords like "insurance company financial health" or "diversified insurance products" to get updates on companies that match the criteria for stability and recession-proof business models. This way, you'll be notified of relevant news articles, press releases, and financial reports that can help you make informed decisions about which insurance stocks might be worth considering.
- Create a personal financial rule to review and poten ...
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