Felt like just yesterday that we were ringing in the new year, but today marked the end of January. That’s a whole month of 2024 that’s already gone. Anyway, looks like January is off to a great start, and it pretty much is carrying on with the themes of last December.
The market is once again being driven predominantly by the same themes: tech and, more specifically, AI. In fact, major indices are already up strong for the year, and mega-cap tech stocks are up even more.
As earnings season begins, there is a lot of chatter I see about whether these companies can meet the sky-high expectations that have been fueling some of these large gains. And then there are others that are sounding the alarm of coming large drops because “they have run up so much.”
Normally, large drops would make me a little worried. Nobody likes seeing their portfolio drop by 10%. Normally, I definitely wouldn’t either. Normally.
This time I feel a little different. And part of this has to do with the realization that markets naturally go up and down over time, and it’s healthy to have a little pullback after larger runs. Look at Nvidia, which is up close to 28% just for the month of January. It’s almost like we are baking in perfect execution from these companies, which may be fine for the likes of Nvidia that are in the heart of the current trend, but may not necessarily be the case for others.
Case in point: AMD. It ran up strong into the earnings call and pulled back about 10% between regular and extended trading. Normally, a 10% drop is a lot, but considering it’s up 22% for 2024 even with today’s drop, I find that reasonable.
It’s healthy to have a little pullback, as that lets the stock form a stable base so that it can work upwards in the long run. If a few stocks have run up ahead of the earnings calls, there is a strong chance they will disappoint the Street and pull back in stock price. And that’s okay. That’s just part of the normal investing process, I say.
So what am I doing? Nothing different. If my original investment thesis for opening a position is still valid, then the best thing I can do is just ride the ups and downs, knowing that trying to time the market is a proven recipe for failure.