🌹A selloff for the right reasons

Hey hey, happy Monday!

Rough week last week with the S&P 500’s first 2% down day in a year and a half.

But the headlines you saw made the drop sound a lot worse than it was.

This stock market is about as authentic as they come, selloff and all.

Before we get there, I would love it if you shared OptimistiCallie with a friend. Maybe your whole reality TV show group chat 😊

Authenticity is the scarcest commodity in society right now.

In a world curated by filtered highlight reels, it’s hard to know what’s real and what’s manufactured.

The rise of social media has undoubtedly contributed to the decline in authenticity.

But before social media, there was The Bachelor.

For the unfamiliar, The Bachelor is a reality dating show where an eligible, handsome man dates 20 women over a few weeks. He eliminates women as time goes on and often proposes to the last one standing. Swap the sexes, and you have The Bachelorette – men vying for a woman’s heart. It’s a microwaved relationship culminating in a lifelong commitment – and it is fascinating.

Millions of people have tuned in over The Bachelor’s 22-year history. Yet as the show’s popularity soared, it shifted from a love experiment to a competition for attention. In 2009, about a year before Instagram’s debut, a contestant named Wes Hayden was famously booted off Jillian Harris’ season of The Bachelorette because he was there to promote his music career.

Jillian told Wes he wasn’t there “for the right reasons”. And that day, a new era of clout chasing was born.

Fifteen years later, The Bachelor – and reality TV in general – has become a breeding ground for wannabe influencers. And in turn, “for the right reasons” is now a popular meme-like phrase used to describe any shred of authenticity left in our lives. 

I want to talk about authenticity for two reasons.

One, because I’ve been a fan of The Bachelor since high school and I can’t stop thinking about the bad incentives that come from our human desire for attention.

Two – and more importantly – because I think we saw a flash of authenticity from the stock market this past week.

A selloff, but for the right reasons.

On Wednesday, the S&P 500 dropped 2.3%, a move so severe that we hadn’t seen it in a year and a half.

Naturally, people freaked out. This stock market has seemingly defied gravity since it turned around in late 2022. Could this be the moment when this two-year streak of gains finally cracks and we learn that it was all a big face-tuned scam?

It was a rough day, but the losses uncovered some important truths about how real this stock market rally could be.

First of all – the market fell dramatically, but not all stocks did.

Whenever the stock market drops, the first question you should ask yourself is if it was the work of the market or the stocks. Sometimes, a headline or report convinces investors that the world is in grave danger, causing all stocks to drop simultaneously.

That’s not what happened. Sure, people were dumping big tech stocks after Tesla and Alphabet released disappointing earnings results. Four stocks in the Magnificent 7 – Alphabet, Tesla, Meta and Nvidia – fell at least 5%.

The rest of the market was pretty resilient, though. Take the Magnificent 7 out of the equation and the S&P 500 was down just 1.1%. Seven stocks accounted for half of the drop.

Some of this is by design. The S&P 500’s performance is weighted by market value, so bigger companies have a more significant impact on index moves.

More perplexing, though, was that about a third of S&P 500 stocks rose on Wednesday.

You don’t often see that amount of strength on a day when the index falls so much. In fact, we haven’t seen that percentage of S&P 500 stocks rise on a 2% down day since 2000. 

Many stocks that rose were real estate funds, power companies and oil producers. They’re not exactly the sexy tech stock that you’d brag about to your friends, but they could benefit from rate cuts. Wall Street calls this a rotation – people selling stocks and buying others because the investing conditions are changing.

Nothing fundamentally changed for markets, either.

We didn’t get a damning report on unemployment or jobs. Interest rates didn’t change. Yes, some earnings reports stunk, but you get a few stinkers every quarter. Profit expectations are rising, and 70% of S&P 500 companies are beating second-quarter expectations.

Put it all together, and it was one of the best bad days I’ve ever seen.

An unsettling drop, but no real reason to panic.

Truth is, you can’t judge a market by one day. History has shown us that the US stock market has gone up over time, but that doesn’t mean it’s climbed higher every single day. 

Think about this: the stock market has risen in about 70% of years since 1970. Yet over that same time frame, the S&P 500 has averaged a 15% drop each year.

Here’s a look at the past 30 years:

Selloffs are normal, even for strong stock markets supported by solid economic growth. They signal change, and change isn’t always bad.

I’d go a step further and say selloffs are good, especially if you’re the type of investor who believes in the “buy low, sell high” investing advice.

The stock market is telling us who it really is. A raging bull, pierced by an unlucky tech-driven summer storm.

And in my eyes, it’s pretty authentic.

Thanks for reading!

Callie

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