Well, that was fun while it lasted. Big gains for stocks were "on the house" while the government kept the good times going through easy money.

A few weeks ago, Federal Reserve took the punch bowl away by announcing that they will raise interest rates as soon as March.

The markets did not respond well, and are now having a major headache and a bit of hangover. Just look at the performance of some high-flying stocks after they peaked last year:

Zoom -74% in thirteen months

Peloton -85% in twelve months

Pinterest - 70% in eleven months

Moderna -65% in five months

Netflix -44% in two months

The bear market for many stocks didn't just happen... it started early in 2021.

It's all part of the process of getting back to reality. It's healthy, but it hurts.

Over the last 80 years, the stock market has returned about +10% per year. The stock market is usually up three out of every four years.

But let's take a look at drawdowns for the overall market, which is a measurement of how bad things get before they start to get better. On average intra-year drawdowns are about -16%. Sometimes it is much worse. There was a -34% drawdown during the 2020 "Corona Crash"... but remember that stocks ended the year up +26%.

The market is back to its October price level (purple line, below) and is maybe starting to rebound out of oversold conditions (purple circle). This suggests that it's not a bad time to do a little bargain shopping for quality stocks. Only the good stuff - with earnings, dividends, and stability.

I'm not sure if the current downturn is over yet. It might take another few months, but it will be temporary.

There is another segment of the market that I'm more worried about... and those are the "visionary" hype stocks that are years away from profitability. That part of the market is broken for now.

As I've mentioned before, a little inflation isn't a bad thing. In fact, the early stages of inflation can be a lot of fun, especially for holders of real assets (stocks, real estate, etc.)

The problem is when interest rates start to rise in response to inflation. This does a few things:

1) It makes borrowing expensive. If people borrow less, they spend and invest less.

2) It makes putting money in cash/CD's look more appealing. Up to this point, we've been at close to 0% interest rates for savings accounts/CD's. This pushed a lot of money into stocks - now some of that money is going back into bank accounts.

3) It messes with valuations. Higher interest rates make investors impatient for profitability. Sooner becomes more important than later. And this is a big problem for companies that are growing rapidly at the expense of burning through their own cash.

Because of this, I had to sell out of some crazy growth stocks in the middle of December and raised cash holdings in many accounts. It was fun while it lasted, but I'm not going to lose a lot of money while fighting the market.

Last month, my book Foresight Investing: A Complete Guide to Finding Your Next Great Trade was recognized as a Most Significant Futures Work by the Association of Professional Futurists (APF). This is the highest honor given to futurists by other futurists.

It feels great to be recognized by a remarkable worldwide network of forward thinkers. While it took Covid-19 quarantine to finish this book, it was almost two decades in the making.

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