I stayed in a hotel last night, which means that, today, I qualify as a subscriber to USA Today.
Specifically, I found an unrequested USA Today outside my door when I woke up. It’s still there. But the front page did seem to warrant a quick photo as I stepped over it.
As I recall, the last time I saw a USA Today, a month or two ago, the paper’s main headline was suggesting that the stock market was entering a big new bull market. That headline caught my attention because of the famous “cover jinx.” The cover jinx holds that when general newspapers and magazines proclaim that something is happening in the markets, it’s usually time to go the other way.
The Dow is down almost 10% since that bullish headline.
As I have said frequently over the past few months, I think the recent market drop may be only the beginning. I think stocks could end up falling 40%-50% from the peak over the next couple of years.
In case that sounds cataclysmic, I’ve also said that I’m not selling the stocks I own and that I don’t know what the market is going to do, especially over the short term. The one thing I am relatively confident about is that stocks are very expensive and that stock performance over the next 7-10 years is likely to be crappy.
Anyway, today USA Today has put the stock market on the front page again. And this time, the headline is actually ostensibly bearish: “Investors brace for bigger drop.”
If investors really are bracing for a bigger drop — and selling in fear of it — that’s actually modestly bullish. Once everyone’s bearish, there will be no one left to sell, and the market will go up.
So maybe, in the short term, this dip will be a “buying opportunity.”
But based on valuation — stocks remain startlingly expensive — I still think stocks are likely to deliver lousy returns from these levels over the next 7-10 years.