Special Edition: Market MELTDOWN 🫠 – what to do, when to do it

6th August 2024

Sam Volkering

Aug 06, 2024

Welcome to AI Collision 💥,

Japan's flag flying at half mast, but the red dot in the middle of the flag is melting

In today’s collision between AI and our world:

Japan triggers mayhem
Japan triggers mayhem
Japan triggers mayhem

If that’s enough to get the stomach churning, read on…

AI Collision 💥

We were going to dive deeper today into AMD’s earnings. We were going to look at AI stocks and we were going to look at more stocks as they released their numbers.

But then Japan happened, and the market took a hiding. So, we cut all plans for anything else to look at what’s going on, and what should we do about it?

What is very clear from the outset is that yesterday we all got a little poorer.

At least on paper.

Thanks to the Bank of Japan, stock market bears, leverage traders, Iran and Israel, bitcoin, the Federal Reserve, fear and greed… and for reasons we’ll never really understand, things are RED.

When markets are rough like this it’s a hard day to stay sane, to stay together and to stay rational.

In times like these, I find it cathartic to turn to the memes. And boy are the memes great today!

For all the Seinfeld fans out there…

And for those who know who Salt Bae is:

If you liked the Beckham documentary then you’ll love this:

And just when you thought the fear and greed index couldn’t get worse…

Of course, that means with stocks getting hammered, AI stocks have taken a clipping too…

Or have they?

At last check (time of writing), AMD (NASDAQ:AMD) was UP for the day (not much, but still up), Onsemi (NASDAQ:ON) was up almost 4%, NXP Semiconductors (NASDAQ:NXPI) was up and LAM Research (NASDAQ:LRCX) was up – like AMD, not by much, but a 0% to 1% win today is worth its weight in… well, very good performing stocks.

So, it seems although some are calling this all a black swan-style event (and to be fair the Nikkei 225 did have its biggest single-day drop EVER) that not all stocks are going to the proverbial shi**er.

If anything, some of these AI-focused stocks are a defensive way to play a market meltdown.

But I digress somewhat…

Most of the market is in meltdown, and there’s a 100% chance your portfolio is worth less today than it was yesterday.

Unless you’re in cash, but then again, it’s still worth less today than yesterday because… inflation!

So, we ALL lost money. And so much so that it looks like the US Federal Reserve is going to step up, step in and aggressively cut rates – maybe even in an “emergency” cut this week, and then another in September… the double whammy!

And you know what that means kids?

Yes, the memes are great, I told you.

If money printer goes “brr” then markets do the old “number go up” trick.

And if you’ve got a bunch of AI stocks that have been defensive against what’s gone on in the last 24 hours, then you’re very sweetly placed to see that number go up very much indeed.

Jokes aside, it’s a tough day when it’s a sea of red.

And there are still systemic issues with levels of debt, particularly government debt. So, we never want days like these in the markets, but they do make great stocks cheap.

And some of the names we’ve written about in the last few weeks and months are now trading at a discount.

I mentioned the stocks above haven’t been clipped too hard. But here’s some more that have…

Nvidia, down over 7% and under $100
ARM, down almost 7% and trading near $105
Taiwan Semi, down 5% and near $140
Super Micro Computer, down 6% and now under $600
Vertiv, down 7% and under $65
Micron, down 6% and now under $90

What you’ll find is these stocks are all down heavily in trading from yesterday. But they’re also heavily down over the last couple of weeks.

They’re all roughly down 30% to 50% from their 2024 highs.

They may even trade lower this week and for me that means you’ll get to a point very soon as to making a great call or a not-so-great call in the market.

My take is that sometime this week, we’re going to find a quick bottom in the market. Rates will cut, money will print, sentiment will come back hard and fast.

Also, earnings will continue to pump out and they’ll be pretty good. When the market is like this, all it’s now looking for is a glimmer of hope to pump it back.

I think that will come. Maybe not today, maybe not tomorrow but in the next week or so. I think that being active and investing in the market makes great sense now for long-term investors.

I can’t tell you what to buy, or when to buy it. But I can highlight stocks that I think are trading at a discount to their long-term value. And that’s what I’m doing here.

I’ve just given a roll call of AI-related stocks that look attractively priced now, I liked them a month ago, and I like them more now.

If you’ve got the risk appetite for volatility (the kind we last saw in 2008 and 2020) and you’ve got the risk capital to deploy, I don’t think you want to sit on your hands here.

I think it’s a buyer’s market again, and the time to buy is upon us.

Boomers & Busters 💰

AI and AI-related stocks moving and shaking up the markets this week. (All performance data below over the rolling week).

man in black suit jacket and black pants figurine

*Ain’t much booming this week…but the busts give some perspective as to how heavily sold some of these stocks are right now.

Boom 📈

Appex (ASX:APX) up 77%
Team Internet Group (LSE:TIG) up 7%
Bigtincan Holdings (ASX:BTH) up 5%

Bust 📉

Nvidia (NASDAQ:NVDA) down 10%
C3.ai (NYSE:AI) down 14%
iRobot (NYSE:IRBT) down 24%

From the hive mind 🧠

CNN says CARNAGE. And I guess they’re right.
Washington Post says the US government blames Elon for all their problems. He’s not it.
BBC says UK government is shelving AI plans. They are.

Artificial Polltelligence 🗳️ The Results

Ahh you’re a smart bunch aren’t you!

Last Thursday I asked if the sell off in tech was going to impact your investment decision making at all.

And while it was a mix of results, cool heads clearly prevailed, and after the activity in the last 24 hours, the right decision at that…

It should be said that there’s actually little difference for long term investing in taking action, and investing when you have available capital right away, and dollar-cost averaging, and even poorly timing the market.

But what really hits a portfolio and can drag on long term returns is being completely out of the market.

Analysis of data over time suggests that its in bear markets and in large market drops when markets end up having some of their best days.

So you might feel like you’re doing the right thing when you’re out of the market, but unless you have perfect timing which no one in history ever has, then it hurts you to be out of the market and to miss even a couple of the best days on the bounce.

Research and data analysis over time says most investors are just best placed to stay invested for the long term, ride the peaks and troughs and keep adding when you want to. That I think is the way to go, and that’s the approach I know I’ll be continuing to take.

A new poll coming on Friday (remember our new democratically voted for schedule!) and with the market behaving as it is, I’ll be very keen to see what you’re saying later this week.