Market Update – 9/10/2021

Economic activities, especially dining out and traveling, began to slow down in August due to the spread of COVID-19 Delta variant.

The U.S. economy is mainly driven by private consumption. Investors are not optimistic about retaliatory consumption due to Delta’s proliferation, which was expected after the epidemic’s conclusion.

The market still maintains its high. Under uncertain economic expectations, major financial institutions have warned that the market may be due for a slight correction, but there are no signs of an impending plunge.

We maintain our previous view. As trading activities accelerate after summer vacation,   the probability of a short-term plunge is low, but a 10% correction is very likely.

The popular meme stock GameStop (GME) announced lower-than-expected profit and did not provide any clear transformation plan on Wednesday, resulting in a decline of 8% during after-hours trading.

We often mention the concept of owner and dog: the economy is the owner, and the stock market is the dog. The stock market may deviate from the economy in the short term, but it will always eventually return to fundamentals in the long run. The same is true for individual stocks.

The most dangerous phrase in investment is “this time is different.” A reasonable stock price range is typically determined by price-to-earnings ratio. During the dot-com bubble however, many Internet companies made little to no profit, resulting in extremely high or incalculable price-to-earnings ratios. Some analysts coined the term “price-to-dream ratio”, claiming that it didn’t matter if there was no short-term profit. Investors who chanted “price-to-dream ratio” to rationalize high stock prices suffered large losses. As evidenced  by the dot-com bubble collapse, “price-to-dream” is indeed just a dream.