The day the growth trade topped
Here’s another piece from the Ritholtz stable, this time from the CEO Joshua Brown, who picks on from where Ben Carlson left (a piece we featured in last week’s 3L&3S), on whether indeed rising interest rates hurt stock markets or is it just another story we like to ascribe to what are largely random movements? Brown reckons it is the latter but drives home another important point about the futility of trying to make sense of short-term stock price movements.
“One of the myriad ways you can spot a veteran investor amid a crowd of new or inexperienced investors – the veteran doesn’t need a reason to explain everything that’s happened. Veterans, after ten or twenty years, come to accept the randomness inherent in the game. Until you can accept that there isn’t always a reason for everything, it’s hard to move forward in this business.
Sometimes psychology just changes and sellers become in the mood to buy, or buyers get in the mood to sell. The media takes note of this shift in behavior and attitudes, and it sets out to find a reason for it afterwards. They do this because it satisfies the audience’s very human need for cause and effect. We all want linearly plotted story lines that have a beginning, a middle and an end. We want to know what force caused this or that reaction, because – our minds reason – if we see that force abate, then so too will we see the reaction subside.
This week it’s rising rates. Treasury bond rates are rising which is said to be bad for high multiple growth stocks therefore if we can just get ahead of when rates might stop rising, maybe people will stop selling high multiple growth stocks and start buying them again.
Now, of course, this “analysis” completely disregards the fact that stocks and interest rates have a history of rising together. This happens all the time. Stocks have risen in 13 of the last 15 rising rate environments. Tech stocks too. High multiple tech stocks too.”