We have seen a new trend with several 10 for 1 Stock Splits being announced recently, and that news helped skyrocket stock prices for companies making the announcement.
This trend should continue throughout 2024.
With several Tech companies announcing Mediocre earnings and lowering their forward guidance this past quarter, and seeing their stock price drop 10%-30%, many now wish they would have announced a Stock Split to help reduce the decline.
With apps like Robinhood, the Meme Stock & Option trading frenzy, companies are now realizing their $500-$1,000 per share stock price needs to substantially come down. This strategy to lower a stock price is needed to bring in more Retail investors, and increase the buy orders to drive a company’s stock price higher.
The fascination of media coverage on Meme stocks now is extremely unhealthy, as it was during the Dot-Com era. These Meme stock trades are treated as a game, and is nothing short of Gambling!
If you watch enough CNBC & Bloomberg financial coverage, you will see several stories each day about GameStop stock. The company’s business is rapidly declining, and the Cash they have on hand comes from selling their own company stock when Media coverage pushes their stock price higher.
Nothing is Cool about implementing a investment strategy where “Hope” determines your Gains or Losses.
High Risk Uncovered Options trading has once again become extremely popular, similar to what we saw during the Dot-Com era, and we all know how that ended.
It is important to understand Option trading can be a very complex strategy to use, one that can actually Reduce your Risk with a individual stock, by using a COVERED Options strategy, and the VERY Risky UNCOVERED Options strategy.
Covered, means you own at least 100 shares of the underlying stock, and Uncovered means you Do Not own the underlying stock.
Investors using apps like Robinhood prefer to use Uncovered Options, a cheaper way to gain exposure to a stock without having to commit as much money to purchase the stock.
Uncovered Options, should NEVER be used by Retail investors, as the Risks are too great, and you may lose 100% of your money.
One Option contract requires you to own 100 shares of the underlying company, with this requirement, it’s almost impossible for Retail investors to own 100 shares of a $500-$1,000 per share stock.
The trend is moving towards companies announcing Stock Splits, which allow a $1,000 per share stock price to become $100 per share, using a 10 for 1 Stock Split strategy.
For over the past year, Tech companies have announced positive earnings, raised their forward guidance, and have benefited from their stock price rising rapidly. This trend is coming to an end, based on what we have heard from many Tech earnings announcements this past quarter.
There is about a dozen Tech companies who can do no wrong, and their stock price keeps accelerating. With Meta (facebook) after their recent earnings announcement, their stock price dropped from over $500 to $430, the reason for the drop, lowered forward expectations.
Several other Tech stocks had similar forward statements, and saw their stock drop 10%-30% as well.
Many investors feel they have missed the Tech trade, and many have. To get into those type of stocks now could be putting you in a situation where your Tech investments drop significantly, when forward guidance is reduced, based on Economic Data starting to show negative signs.
I believe 2024 and 2007 have many similarities; 5%+ Federal Funds rate at the start of the year, Economic Data starting to show signs of weakness, and the Fed Lowering Federal Funds rate.
In Summer 2007, the Fed cut Federal Funds rate 25 basis points, helping drive the markets higher, until the collapse of the markets in mid-October 2007, and the word Recession used in December 2007.
I am Not predicting the stock market will drop in 2024, as it did in 2007, considering much of the drop in 2007 was related to the Credit Crisis. We all remember this Credit Crisis helped bring Global Lending institutions to their knees, thankfully, we don’t anticipate anything like that happening again anytime soon.
However, if the US Debt doesn’t get under control soon, all bets are off in the coming years.
I am watching Buy Now, Pay Later very closely. I am not a fan of people buying $50 worth of teeth whitening and taking the option of splitting those payments up over 3-4 months.
Once consumers rely on this payment method and start missing payments on that loan, Buy Now, Pay Later credit availability will dry up, and consumer spending comes to a screeching halt.
The dark storm clouds from Economic Data is getting closer. Investors should Not panic, but should be aware those dark storm clouds cause no immediate threat, however, need to be watched closely moving into 2025.
Investors need to remember, stock prices today are pricing in events 6-12 months in advance, which is how sharp declines in stocks can happen, even though Economic Data is Mediocre, and Not declining sharply.
We can have Market Recessions without Economic Recessions!
Please contact me if you are interested in a second opinion on your current investment allocation or you have Cash you are looking to invest.
The right individual stocks can perform much better, while being less risky, than relying on the overall market in Economic conditions like we are in now, and moving into 2025.
James R. Wigen, CAM® ChFM® CPM® CWM®
J.Wigen@IFManagers.com
James CAM® ChFM® CPM® CWM® designations are issued through Global Academy of Finance and Management or GAFM®.
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All opinions expressed by James R. Wigen on this website are solely his opinions and do not reflect the opinions of IFP Advisors, LLC, dba Independent Financial Partners, (IFP). Investment Advice offered through IFP Advisors, LLC, dba Independent Financial Partners (IFP), a Registered Investment Adviser. IFP and Independent Financial Management, LLC (IFM), are separate entities.