The last 12 months have been just about as bad as it gets in stock market history.
Over the last year, stocks are down 42%. (That just beats the previous record of -41%, set in the 1973-74 bear market.) This kind of destruction usually takes place over many years. But this time, the destruction was compressed into just one year.
Now, we’re at an awesome moment. We have dirt-cheap stocks, investor pessimism all around, foolish selling, forced selling, plummeting energy prices, and a Fed that has cut rates to 1%, committing to do everything it can to ignite the economy.
This is the historic recipe for making a fortune in stocks. The question is, when the stock market finally recovers (and it will!), what could lead the way?
In the major rallies that followed the last few bear markets, the big winners were tech stocks…
• The stock market last bottomed in late 2002. By the beginning of 2004, tech stocks (as measured by the S&P Information Technology Index) had doubled.
• The previous market bottom came in late 1998. After that low point, it didn’t even take a year for tech stocks to double. (Of course, that was back in the dotcom days.)
• In the bear market before that, which bottomed in late 1990, once again, tech stocks soared… up about 50% in just five months.
Conditions are ripe for tech right now…
Tech stocks have fallen 50% in the last 12 months and are down 75% from their 2000 highs. Investors are completely ignoring them… Banks, real estate, and commodity stocks get all the headlines. But you want to buy things when nobody’s talking about them. And tech stocks are the cheapest they’ve been since 1995, on a price-to-sales basis. Take a look:
Tech stocks haven’t been this cheap since 1995
There’s just one problem: The time is not right yet.
Tech stocks are still in a downtrend (as measured by shares of a technology stock exchange-traded fund). If we’ve learned anything over the last 12 months, it’s that we don’t want to try to catch the ol’ falling knife – we don’t want to buy stocks in a downtrend.
We are near a historic buying opportunity in stocks. And based on the last few bull runs after down markets, major tech stocks should be on your buy list. They performed spectacularly coming out of the last three markets. They could easily do the same again.
When we start to see the uptrends, you need to be a buyer – of stocks in general and tech stocks in particular.
• This article was written by Dr. Steve Sjuggerud for the free daily investment newsletter DailyWealth