I don’t think it will be as bad as everyone thinks.
The current market is an odd one. There’s no specific driving force other than tech and speculative assets like crypto essentially losing steam. Money was so easy to come by, people were throwing it at anything that even remotely seemed like it would make money. This was largely fueled by massive spending on the federal government's part. PPP loans to many who didn’t need it, benefits to everyday Americans like generous unemployment benefits and covid checks, big business money like the fed printing an absurd amount of money and lending it out at 0% interest, bailouts, and more all fueled this free money craze that made the 2020 and 2021 rally.
Now, everyone is kind of hungover and wondering what is going to happen… but the money is still there. After a couple of years of massive earnings on most major player's parts, they’re still doing well, just not able to keep up pace.
This doesn’t mean there isn’t going to be growth, it just means it’s going to be slower. As you can see now, many players are trimming the fat. It’s not mass layoffs, it’s just consolidation and cutting things that probably needed to be cut anyway. The market is gonna shift to a focus on profitability over revenue, and that’s ok.
In the startup world, which saw particularly frothy valuations, it’s not as bad as you might think. VCs are actually still sitting on a record amount of money to invest… they’re just not investing it.
That kind of leaves us in an odd position where people have the money to invest, they are just waiting for things to cool down a bit. However, it’s impossible to predict the bottom of the market. This means that, similar to where we are now in public markets, people are going to keep investing where they think the bottom of the market is ultimately acting a safety net for investors as they look to find value before the inevitable rebound.
The markets began essentially crashing in early 2022 and have continued to pull back for a while now. This means were going on almost a year now of this downturn.
This leads me to believe things like inflation will cool down, people are beginning to adapt, and those that are going to survive, are pretty much will likely make it to the end of the tunnel. This isn’t to say it’s over, but I don’t think things will get much worse than they are now. This isn’t to say we are at the bottom, just that I don’t think we see a 2008 anytime soon.
I say that because there’s no catalyst. Inflation is slowly dropping, covid isn’t a concern anymore, people are sitting on record cash and earnings, and companies are adapting by cutting fat in response to slower earnings numbers.
Valuations have considerably compressed and top companies like Apple, Google, Facebook, and others are all sitting at massively compressed valuations. This will begin to attract people as they think we hit bottom and people want to find value. The same is true in startups.
Ultimately, I think the pain will continue for another month or two, but then people will begin to realize things aren’t that bad and begin investing again. If the consensus is that a rebound is going to happen, then the bottom is in, and people will start investing again, and the next bull run is imminent. Many people are expecting the first six months of 2023 to be painful, then a 2H of 2023 rebound, which tells me ‘smart money’ will be getting in now, and then pushing a narrative in 6 months that things are great and a rebound is happening. After that, it’s off to the races again.