March came in with a lion, with the biggest bank failures in over a decade giving a lot of investors flashbacks to the death of Lehman Brothers. It’s all right to be stressed out. We’re all human. Nobody who lived through the 2008 crash wants to go back.
But as investors, we fight to separate our human fears from the economic fundamentals. We look for guidance in historical patterns. We learn from even the worst experiences.
And that’s why I’m not really surprised to see the NASDAQ bouncing back as though nothing is wrong. Big-money traders didn’t get into the big money because they’re stupid.
After all, history suggests that even if Silicon Valley Bank goes down as another Lehman Brothers, Silicon Valley stocks will do just fine. That’s actually what happened in 2008. If history repeats or even rhymes, technology will outperform.
Behind The Flashbacks
Even a cursory look at the data shows that while the technology sector plunged along with the rest of the market in the wake of Lehman’s implosion, shareholders who kept their nerve recovered relatively quickly.
Market-weighted tech index funds bottomed out in February 2009, roughly five months after “the Lehman Moment” triggered the ultimate crash. They were back at pre-Lehman levels by July.
Let that sink in. Someone unfortunate enough to buy into the NASDAQ a few days before the credit crunch was back in the money in under a year. At that point, they were no longer feeling any pain. Instead, the profit meter started accelerating.
And since then, of course, the bull ran practically uninterrupted until the Fed killed the party near the end of 2021. A lot of traders look back on that era as a golden age, a once-in-a-generation entry point. If you missed it or were too scared to jump in, you missed out.
Today, traders have evidently decided they’d rather jump in a little early and grind their teeth 6-12 months. What they don’t want is to sit on the sidelines watching helpless when the bull comes snorting back like it did in 2009.
Maybe we don’t score the perfect entry. Maybe we have to hang in there for a few more months. But it’s still worth it. If we’re feeling the ache of an echo Lehman Moment now, playing that rerun out to the end suggests that technology stocks will be in the scoring zone by the end of the year.
After that, the gains compound. And if there’s no credit crash . . . if the Fed and the Treasury do what it takes to prevent that Lehman echo . . . Big Tech gets back to work even faster, doesn’t it? Dodging the doomsday scenario means business as usual.
As always, this isn’t just my natural optimistic nature shining through. There’s no “reality distortion field” at play in this argument.
The NASDAQ has been flirting with formal bull market levels since the end of January. The death of Silicon Valley Bank cost the tech-heavy index a total of 7 percentage points and two whole weeks of idle time.
We’re back in the bull zone now. By my math, this end of the market has already generated $3.5 trillion in wealth YTD. That’s trillion with a T, the big one.
Those trillions of dollars wouldn’t have materialized in the first place unless serious investors around the world weren’t piling into the NASDAQ and the largely high-tech stocks that dominate it. And that money definitely wouldn’t still be there unless those same serious Wall Street figures thought things will get even better.
If they saw catastrophe ahead, they would have cashed their windfall and gone. That hasn’t happened. The dominant emotion here is ambition. Nobody wants to leave money on the table. They aren’t asking “whether” tech stocks can survive in the current economic environment. They’re asking “how high” these stocks can go.
Stack all the apocalyptic talk against that $3.5 trillion the NASDAQ has created in the past three months. I’ll vote with the money over the mouth every time.
Now admittedly, the financials are hurting. Contagion hits them where they live. But I see about $340 billion has vanished from that sector YTD . . . not even a tenth of what the NASDAQ has created. Stack suffering banks against Silicon Valley and it’s hard to even feel the drag.
Remember, it took the banks until 2013 to recover their pre-Lehman levels as a group. That’s how long it takes that side of the economy to bounce back when they’re at the center of the storm.
And the banks were already in free fall when Lehman died, which is one of the main reasons Lehman died in the first place. Finance sector investors who bought the peak in 2007 stayed underwater until the end of 2019.
That’s too long to stay patient. Too long to stay the course. Twelve years is a big chunk of any investor’s lifetime. If you think we’re in for a repeat of 2008, there’s probably no reason to buy the banks here.
Just look at history. The financial sector as a whole is worth 4.4% more today (not even accounting for inflation) than it was right before Lehman imploded. It’s taken this long for these stocks to get back to work.
In my point of view, Big Banking is broken. There are good banks and we play with them in portfolios like my Value Authority, but as far as I’m concerned the sector as a whole is effectively dead money.
Tech is where the innovation is. Believe it or not, Visa (V) is considered a tech stock. The company sells financial services across a high-tech platform. It’s a big piece of the future of money.
Companies like Visa are eating the banks’ lunches. You don’t have to be afraid of disruption when you have the disruptors on your side.
But it doesn’t take a genius to sell the banks here. Lehman Moments only accelerate their decline. Bank crashes are a symptom of underlying stagnation after a decade of zero interest rates . . . they aren’t the cause.
Big Tech, Little Tech
And $3.5 trillion in fresh wealth on the NASDAQ isn’t an illusion. Those traders aren’t crazy or ignorant of reality. Their eyes are open.
They’re buying. While the NASDAQ and every mega-tech Silicon Valley stock is in bull market gear right now, there’s still room to buy the dip without having to worry that you’re coming in at a near-term top.
The NASDAQ is still 20% from its all-time high. The bulls have only come halfway. Even mighty Apple (AAPL) has 9% to go before recovering its 2021 peak.
Amazon (AMZN), Tesla (TSLA) and Meta (META) are still 45-50% from their highs. They’ve been cut in half. And TSLA in particular has already rebounded 90% YTD.
I’d rather invest selectively lower down the Silicon Valley food chain. But one way or another, Big Tech looks a lot better than Big Banks. These names are collectively defensive and yet they have a lot of runway.
The banks have hit a wall. It doesn’t matter if there’s a 2008-style credit crash waiting for them or not. Avoid stocks that run out of room. Gravity is your enemy there.
One day, AAPL and company will hit that wall. The day may be coming fast. For now, though, there’s nothing but blue sky there.