Stocks Likely To Bounce Higher From Here | Lance Roberts & Adam Taggart

**Lance Roberts** (0:00)
And every time that momentum is this oversold, you are typically somewhere close to a bottom.

**Adam Taggart** (0:13)
Welcome to Thoughtful Money. I'm Thoughtful Money Founder and your host, Adam Taggart, welcoming you back here at the end of another week for a weekly market recap with my good friend, the rebounding portfolio analyst, Lance Roberts. How are you, Lance?

**Lance Roberts** (0:26)
Rebounding, how's that?

**Adam Taggart** (0:28)
Well, I'm hoping that may apply to the market here since the market's been falling over the past week, and curious if we're oversold and due for a bounce. Secondly, it should apply nicely to our rant if we have time to get there today.

**Lance Roberts** (0:43)
Okay, perfect. Let's do it.

**Adam Taggart** (0:45)
The basketball theme rant.

**SPEAKER_3** (0:46)
Okay.

**Adam Taggart** (0:47)
All right. Well, look, why don't we just start with the punch line? Rough week for stocks. Last week, we were sort of raising the question, was the sell-off over? This week has shown, at least up until Friday morning, no. But I have been following you on Twitter, Lance. I'm going to guess you are going to tell us here that the market is probably quite oversold in the short-term here, but don't let me put words in your mouth.

**Lance Roberts** (1:15)
No, that's pretty much the case. If you take a look kind of, actually, let's just back up here real quick. It's actually very interesting what's going on. So I wrote an article last week talking about bearish sentiment. I think I shared some charts with you. But bearish sentiments among retail investors is at levels that are on par with the financial crisis, the 2020 pandemic, et cetera. So investors are about as bearish as they can be on the overall market. The market is down about 7% from its peak. So we've had a very mild correction, and yet investors are treating us like, oh my gosh, this is a huge market crash and everything is over now. And you don't have to go back very far. We had an 8.5% correction last August, which was the whole issue with the Yen Carry Trade blow up. And everybody was like, oh my gosh, this changes everything. The Yen Carry Trade's blown up and dollar de-dollarization and all that, and of course, in the market rallies back and hits all time highs. You know, go back to April of last year, and you and I were talking here on the show in February, March, saying, hey, markets are super overbought here, you're going to get a correction. And we had about a 6% correction in April of last year. So, you know, these corrections happen all the time. You know, the average correction in any given year is 5%, 10% corrections are not uncommon at all, and are generally good buying opportunities to put money to work. And this is the fascinating thing about investor psychology, is that two weeks ago, markets were hitting all time highs. And everybody was always like, well, you know, the AI, you know, growth narrative is changing, deep-seek changed the growth narrative and the outlook on earnings and all those types of things. Well, something that we've been writing about since the beginning of the year is that earnings expectations are too high, markets are going to have to reprice for a new reality. Wrote an article called Curb Your Enthusiasm, says, hey, expect a lot more volatility this year as markets reprice for slower than expected earnings growth. So that's what's going on here. All we're doing is, is now we have repriced a lot of these stocks for a slower than expected earnings growth rate. Let's do some simple math here real quick. Now, I'm doing this off the cuffs, so don't nail me on the numbers if I'm off a little bit. But let's assume that we're investing, the market is trading at 6,000, just for example, and markets are looking forward at the time. They're saying, okay, well, in the next two years, earnings are going to be $290 a share, which gives us a forward PE of 21 times earnings. So that's reasonable, right?
We're going to bring the valuations of the markets down through expanded earnings growth, and so people buy that, right? And that's why markets are going up and we're overpaying for assets because we're expecting this earnings growth to catch up. So we say, well, at 21 times earnings, I'm willing to pay X for whatever stock or whatever market is today. So flash forward, now all of a sudden we've had issues, now we've got issues, right? Tariffs. How's that going to impact earnings? How's that going to impact economic growth? Those types of things. So now the markets are going, well, maybe we're not going to get $290 a share in earnings. Maybe we're only going to get $270 a share in earnings by next year. So pretty decent haircut to earnings. At 21 times earnings, that prices the market around 5,500. So we clip 500 points off the markets, and now we're at the same valuation expectation, but at a lower price because we're now expecting lower earnings. And that's all that's happening in the markets right now. And so when we start looking at what's happening, we start extrapolating these narratives to suggest that, oh my gosh, this is the next turnbuckle event in the markets, we're going to have this next financial prices or whatever it is. And that's not the case, right? That's not what's going on right now. We had a lot of leverage in the markets. We had a lot of exuberance, investor exuberance was at all time highs. And you've reversed all of that. And we can go through technical charts here in a few minutes, but we have now driven markets to levels on a basis that you don't normally see.