Is This a Market Crash or a Head-Fake?

The S&P 500’s weekly headline drop of 1.21% will not get much attention nor will the Nasdaq’s 2.06% decline. Yet beyond Apple (AAPL) or Microsoft (MSFT), many speculative stocks are crashing.

DocuSign (DOCU) sent shockwaves on the market when it forecast a weaker outlook. Digital signatures will continue but stay-at-home software stocks no longer deserve to trade at excessive valuations. For example, Unity Software (U) is 43x price/sales. Peloton’s (PTON) business model relies on people spending thousands on a stationary bike and paying a monthly subscription fee.

The Omicron variant is spooking the travel market and stocks. Norwegian Cruise (NCLH) touched a 52-week low last week. Airline stockholders are bracing for another quarter of losses. Airlines may fare better than cruise ships because they received government support during the pandemic.

The Fed’s conclusion that inflation is not transitory also hurt the stock market. At higher interest rates, debt is a more attractive asset than stocks. Stocks must adjust to lower valuations.

The market “head faked,” or fell only to bounce back stronger, throughout the bull market. This time could be the same. Investors should still adjust holdings and raise some cash to account for the above-mentioned risks.