After consolidating and correcting for about five months growth stocks feel closer to a bottom than a top.  Characterized by the stay-at-home trade, those firms that allowed for the infrastructure and lifestyles that permitted work away from offices have given way to a re-opening trade that would benefit firms positioned for renewed economic activity centered around cyclical recovery.  But its important to note, despite perhaps pulling in some futures business during the lockdown, most of the stay-at home crowd benefit from secular tailwinds. So, as we work our way through this consolidation period, and valuations continue to decline, a bottom may be near at hand.

In addition to inflation fears and rising interest rates, investors have been right to focus on poor economic policy prescriptions and that as well has tempered enthusiasm for growth stocks.  Higher taxes, more regulation, and challenges to intellectual property rights have all had their impact on valuations.  Yet one has to wonder how much is priced in?

Thus far, other than the change in investor appetite for these growth stocks nothing has changed from an earnings perspective.  In fact, in many cases earnings growth is actually accelerating.  Several leading software infrastructure stocks will be posting results and outlooks by the end of May or early June, and these results could portent a bright future notwithstanding the sharp declines in their respective equity values.  Moreover, a number of data readouts in biotech industry could change investor enthusiasm for this group at any time.

While it is never a successful investment strategy to call an absolute bottom, or to attempt to “catch a falling knife”, the environment bears watching very closing because there could be a change in sentiment just up ahead.