As you you’ve no doubt seen by now, shares of Facebook plunged around 19% this morning.
In fact it was down as much as 25% in after-hours trading, wiping out $120 billion of wealth in a matter of minutes.
To be clear, that is the largest single-day loss of value ever seen in the history of the world.
(And Mark Zuckerberg’s net worth fell by $17 billion as a result… though I doubt he’s going to be missing too many meals anytime soon.)
The company announced disappointing earnings and slowing growth, which spooked investors.
And while most of the mainstream media is focused on what this means for Facebook and other tech stocks, I’m much more concerned about what this means for -all- assets.
In fact, I think today marks a MAJOR turning point for the “everything bull market” that’s been going on for ten years.
Stocks in particular have been rising for years, led primarily by the most popular “FAANG” tech companies– Facebook, Apple, Amazon, Netflix, and Google.
These companies have been pushed to absurd limits.
Netflix is always a great example: the company loses billions of dollars each year and burns through shareholders’ money, yet the market has constantly pushed its stock to new heights.
Then one day Netflix reported less-than-stellar growth, and the stock tanked. Poof. Billions of dollars of shareholder wealth vanished in an instant.
Now it’s happened to Facebook.
This is an important lesson: when a bubble bursts, there can be a lot of pain… very quickly.
By the way, it’s useful to point out that the FAANG companies have essentially been propping up the entire stock market.
Other sectors, like banking, pharmaceuticals, transportation, homebuilders, etc. have all been struggling.
But because these FAANG companies comprise such a disproportionately large share of a stock index like the S&P 500, the strong performance of just those five companies has lifted the rest of the market.
Now, the invincibility of at least 2 out of those 5 high-flying tech companies has been pierced.
Think about that: investors have lost confidence in 2 out of the 5 companies that have almost single-handedly been propping up the rest of the market.
That’s a pretty compelling sign that the top may be behind us.
It’s not just stocks either: take a look at real estate, which has also been in a bull market for most of the last decade.
Just recently the US Census Bureau and Department of Housing and Urban Development announced that new home prices in the United States continued to slide for the third straight month, to a level not seen since February 2017.
Sales of new homes have dropped to an 8-month low.
Now real estate is extremely local; the market in San Francisco is entirely different than in Tulsa.
But, nationwide, there’s strong evidence to suggest that real estate is either in decline… or grinding to a halt.
This makes sense when you step back and look at the big picture. Nothing goes up in a straight line forever. Not stocks. Not real estate. Not anything.
There always have to be periods of corrections… booms followed by busts.
And when you see so much compelling evidence that a bust is coming, it makes sense to find intelligent ways to sit on the sidelines… because there will be phenomenal buying opportunities to come.
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