• The stock market’s correction seems to be breaking the will of many retail investors to continue participating in the stock market. Consider last year, retail investors were responsible for 21% of all trading activity.  This year the share of stock-trading activity by retail investors dropped to 10.7%. following the same trend, retail investors share of options trading activity dropped from 30% to 26%.
• Utilities have been the second best performing sector this year (behind energy), outperforming the S&P500 by 15%. Yet, the sector’s valuation is is now close to all time highs. Additionally, as interest rates continue to rise the sector’s debt burden which is equal to 5x earnings (EBITA) becomes more concerning. Its dividend yield, which used to be close to 4% higher than the 10-year treasury in 2020, is also becoming less attractive, being only 0.17% higher.
• Despite the fact that the S&P500 is down around 16% this year, less than 30% of the companies in the index have hit a one-year low. This compares to the Growth Scare of 2018 and the Great Financial Crisis in 2008 when 50% and 82% of the index was at one-year lows.
• Long-term investors still have reasons to be optimistic about the stock market. Since 1935 US stocks have only lost ground to inflation 11% of any 10-year time period. Additionally, the S&P500 valuation has already dropped from 21x earnings at the end of last year to 17x today (note: the long-term average is around 15x). Historically investors that bought the index at 17x earnings averaged mid-to-high single digit returns over the next decade.