Business Of Fashion : What Happens When Big Companies Buy Cool Ones

What Happens When Big Companies Buy Cool Ones
Zalando’s acquisition of Highsnobiety is just the latest in a spate of deals in which a company seeking relevance snapped up a smaller, hipper entity in the hopes of reaching a savvier, often younger, consumer. But does chasing cool ever work?

This week, Zalando, one of Europe’s leading fashion e-commerce players, acquired a majority stake in Highsnobiety, the streetwear blog that has established itself as an agency of cool through content, commerce and brand consulting. The financial terms of the deal were not disclosed, though it’s possible that Highsnobiety was valued between $180 million and $250 million.

It’s obvious why Highsnobiety wanted to sell: Zalando offered an exit after more than 15 years, as well as an opportunity to more robustly build out its fast-growing commerce business.

The real question is why Zalando wanted to buy Highsnobiety. It’s clearly not about the money, at least not directly: Zalando generated more than $12 billion in sales in 2021, and neither Highsnobiety’s revenue nor the cost to operate it will have much of an impact on the retailer’s balance sheet. But the value Highsnobiety could generate is significant. Zalando, a mass-market apparel player, has been working to gain a foothold in high fashion. Highsnobiety will essentially serve as an in-house consultancy that can help introduce the retailer to the younger luxury customers it wants to reach. (Over the past few years, Highsnobiety’s creative agency, which advises brands and retailers on content, has become a larger part of the overall business and is growing, according to Highsnobiety co-founder and chief executive David Fischer.)

The fact that Zalando and Highsnobiety are both based in Berlin and run with a German sensibility is another plus.

The deal also reflects a prevailing trend in M&A in the fashion industry, with a spate of established firms snapping up businesses that cater to younger and/or savvier consumers. Just a few weeks ago, Spanish beauty conglomerate Puig bought Byredo in an effort to reach the growing demand for niche fragrance over designer. Management firm Marquee Brands, which owns names like Martha Stewart and Ben Sherman, recently acquired the polarising streetwear label Anti-Social Social Club with an aim to better understand the Gen-Z customer. And a few months back, Farfetch scooped up Los Angeles-based high-end beauty purveyor Violet Grey in an effort to establish authority as it makes a major push into the category.

The reality, however, is that 70 to 90 percent of mergers and acquisitions don’t deliver value, according to Harvard Business Review, because of the way the two companies are integrated after the merger. HBR didn’t single out deals like Zalando’s, where cultural cachet rather than pure revenue and profits was the driving rationale, but the failure rate for these sorts of deals may be even higher.

Oftentimes, the culture of the more innovative business is lost, and the cool factor dissolves. A classic case is Banana Republic. When it was acquired by Gap in 1983, it was a chic outfitter of safari clothes, subsequently transformed into a wear-to-work brand designed to compete with Ann Taylor. But despite some success in the 1990s and more recently, its identity remains blurry and performance is inconsistent. The American beauty group Estée Lauder, which found great success with its purchase of M.A.C., has struggled more frequently in recent years with acquisitions. For instance, five years after buying Becca Cosmetics in 2016, it decided not to resell it, but to simply shut it down, citing poor performance.

It is quite possible for a brand to lose its magic once it’s absorbed by a larger entity, and Highsnobiety fans took to social media to express their concerns. “What a bummer,” said @marcjanssenberlin, a personal shopper. “Puh, I don’t know if this is a good deal for @highsnobiety !?! When they can/will do their [independent] business in the future, then okay. If not, then I would call it a fail…” added @sven_moye.

On the other hand, strong brand management can result in success. VF Corp. has managed to build out The North Face and Vans without, for the most part, damaging their reputations with their core customer bases. Perhaps that’s why Supreme, the ultimate “cool” brand, chose VF as its partner when it “sold out” at a $2.1 billion valuation. Thus far, the queues in front of its Lower Manhattan store remain just as long.

There are signs that Highsnobiety will maintain quite a bit of independence from Zalando: not only editorially, but physically. (They are not merging offices.) In the best-case scenario, Highsnobiety will help to polish up Zalando’s brand, while growing the Highsnobiety business and maintaining some of the magic that made it so special in the first place.

Business Of Fashion : Balenciaga, Prada and Thom Browne Will Be the First Brands

Balenciaga, Prada and Thom Browne Will Be the First Brands on Meta’s Virtual Fashion Store
Users will be able to buy designs to use with their Meta avatars on Instagram, Facebook and Messenger.


Meta is launching an online store to sell fashion for its virtual avatars, and industry heavyweights Balenciaga, Prada and Thom Browne will be the first brands to join.

In a live announcement on Instagram Friday, founder and chief executive Mark Zuckerberg joined Eva Chen, Meta’s vice president of fashion and shopping partnerships, to share the news and offer a glimpse of what Meta’s new avatar fashion will look like. Chen held up images to the camera showing Zuckerberg’s cartoonish Meta avatar in different looks, including a Balenciaga motorcycle suit, a white anorak and shorts from Prada’s Linea Rossa line and one of Thom Browne’s signature grey suits.

The virtual designs will be available for use on Instagram, Facebook and Messenger. Meta plans to expand them to its virtual-reality platform and to introduce additional brands soon. The Avatar Store will begin rolling out next week in the US, Canada, Mexico and Thailand, Meta said in a press release.

Meta has allowed users to create their own avatars since 2019 and has steadily rolled out updates and new features like the 3D avatars it introduced earlier this year. It currently offers free outfits for users to style their digital selves. The next step, Zuckerberg said today, will be a marketplace Meta is building for them to buy items from a range of designers.

”That way, all different kinds of creators over time are going to be able to participate and design clothing and sell it,” he said during the livestream on Instagram.

How much the items will cost has yet to be revealed.

Zuckerberg has emphasised that fashion will be an important part of the immersive fusion of the physical and digital worlds it’s trying to build. Recently he travelled to Milan to drum up support among Italy’s fashion leaders.

So far, fashion companies seem open to the advances.

”Web3 and Meta are bringing unprecedented opportunities for Balenciaga, our audience, and our products, opening up new territories for luxury,” Balenciaga CEO Cédric Charbit said in a statement.

>>> META X BALENCIAGA IS A OFFICIALLY A THING

META X BALENCIAGA IS A OFFICIALLY A THING

Shortly after Facebook rebranded to Meta, the tech company tweeted: "Hey @Balenciaga, what's the dress code in the metaverse?" The query immediately brought to mind the prospect of a Meta x Balenciaga collaboration, a seemingly outrageous crossover that now appears to be a reality.

Mark Zuckerberg and Eva Chen, Instagram's VP of Fashion Partnerships, announced that digital outfits from Balenciaga, Prada, and Thom Browne are coming to Meta's soon-to-be-unveiled Avatar Store.

The feature, which Zuckerberg described as a "clothing store for your Meta avatar," will begin rolling out across Facebook, Instagram, and Messenger next week.

Per a press release, digital versions of Demna's biker boots or Miuccia's logo tank top will come at a cost. While the Avatar Store will offer a selection of free clothing options, the designer garms are not among them. (No word on pricing yet.)

"We expect to bring the Avatars Store to VR and introduce more brands soon," Meta added.

While designer fashion has existed in the greater metaverse for a while, its presence on Facebook and Instagram is a new phenomenon.

Back in February, Meta expanded customization options for avatars, and even worked with the NFL to create digitally wearable Super Bowl shirts. Just as we suspected, the move was a precursor to today's news.

The prospect of users shelling out actual money for their cartoon likeness to wear a Balenciaga hoodie in their Instagram profile picture or a Messenger sticker seems like a reach, but hey — every day, people spend thousands of dollars on drawings of apes.

>>> Weekend Papers Summary

Weekend Papers Summary

NEW YORK TIMES
-The Jan. 6 hearings have undercut, if not demolished, the myth of a stolen election repeated by former President Trump. But the Republican response — indifference, diversion and doubling down — reflects how central the lie has become to the party.
-On the anniversary of the June 17, 1972, break-in, alumni of the hearings gather for a reunion. They had it easier than the Jan. 6 committee, they say.
-Russians Breached This City, Not With Troops, but Propaganda
As Russians batter cities and towns with artillery, they are also bombarding Ukrainians with messaging aimed at eroding their trust in their government.
-Stocks tumble in worst week since beginning of Pandemic
The S&P 500 dropped 5.8% as fears of runaway inflation persisted.
-America Is Heading for a Cliff. Inflation is expected to remain high later this year even as the economy slows and layoffs rise. Already, signs of financial stress are surfacing.
-The cryptocurrency market’s reliance on Tether, a so-called stablecoin, could be its undoing.
-Putin Stokes Anti-American Sentiment as Kyiv Steps Closer to EU
Vladimir Putin accused the US of treating its allies as colonies while declaring itself “the messenger of the Lord on Earth.” Catch up on Ukraine news.
-A Filmmaker Imagines a Japan Where the Elderly Volunteer to Die
The premise for Chie Hayakawa’s film, “Plan 75,” is shocking: a government push to euthanize the elderly. In a rapidly aging society, some also wonder: Is the movie prescient?
-An Uvalde officer had a chance to shoot the gunman before he entered a school, according to a chief deputy sheriff. The officer declined, fearing injuries to others.
-The FDA has authorized Moderna and Pfizer Covid vaccines for the youngest children. A recommendation from the C.D.C. director would be the final step before doses are rolled out for the roughly 20 million children under the age of 5.
-Seven ‘Late Show’ producers arrested at US capitol while filming television stunt. CBS said the group was part of a production team recording interviews at the Capitol building for a comedy segment on “The Late Show With Stephen Colbert.”

THE FINANCIAL TIMES
-US stocks have suffered their heaviest weekly fall since the outbreak of the coronavirus pandemic, after investors were spooked by a series of interest rate increases by big central banks and the threat of an ensuing economic slowdown.
-The world’s most-watched central banks are finally stamping down on a surge in inflation. But this week it became clear that they know this comes at a cost. From the UK, where the Bank of England raised interest rates for the fifth time in as many meetings, to Switzerland, which bumped up rates for the first time since 2007, policymakers in almost every major economy are turning off the stimulus taps, spooked by inflation that many initially dismissed as fleeting.
-While most residents in Shanghai, Beijing and other lockdown-affected cities have been free to travel around their hometowns since early June, venturing beyond the city limits is another matter as regions across the country continue to enforce quarantine and other restrictions on outsiders.
-Russia cutting gas supplies to Europe has long been one of the EU’s greatest fears. This week it became a reality.
Moscow has blamed the decision to restrict volumes on the Nord Stream-1 pipeline to Germany on sanctions imposed after the invasion of Ukraine, specifically those by Canada that left key pumping equipment stranded at a Siemens Energy factory in Montreal.
-Mihály Varga, the Hungarian minister of finance, told fellow EU ministers at a meeting in Luxembourg on Friday that his country could not support the levy at this stage, in part because of the huge pressure economies and companies are under from the war in Ukraine and rising inflation.
-Boris Johnson made a surprise trip to Kyiv on Friday for talks with President Volodymyr Zelenskyy during which the UK announced it would spearhead a training program me for thousands of Ukrainian troops. In his second visit to Kyiv since the beginning of the full-scale Russian invasion on February 24, the UK prime minister announced that he would provide support to train up to 10,000 soldiers every four months.
-The European Commission has recommended that Ukraine be made an official candidate to join the EU, a significant step for the war-torn former Soviet republic on what is set to be a long and arduous path to membership. The decision by the EU’s executive marks a new stage in Brussels’ eastern expansion and a significant leap forward for Kyiv’s western integration efforts amid Russia’s invasion of the country.
-Putin told a business conference in St Petersburg that “gloomy predictions about the Russian economy’s future didn’t come true” and that the sanctions had hit European businesses harder — a claim that is not supported by estimates published so far.
-Covid hospital admissions have risen in several countries including France and England, according to data analysed by the Financial Times. The BA.5 sub-variant of Omicron now accounts for more than 80 per cent of new infections in Portugal. In Germany, where admissions have been rising for over a week, the share of Covid-19 infections ascribed to BA.5 doubled at the end of last month.
-Esther George, president of the Fed’s Kansas City branch and typically one of the most hawkish voting members of the policy-setting Federal Open Market Committee, was the lone dissenter on Wednesday to the biggest rate rise since 1994, which lifted the federal funds rate to a new target range of 1.50% to 1.75%. She instead voted in favor of the Fed sticking with its previously telegraphed half-point increase.
-If Rodolfo Hernández succeeds in his unlikely bid to win Colombia’s presidential election on Sunday, he can credit his campaign team’s clever use of social media and fervent support in his home city of Bucaramanga.
-Next week, Commonwealth leaders will gather in the manicured Rwandan capital Kigali for the organization’s heads of government meeting. For the country’s president, Paul Kagame, the event is an opportunity to burnish his reputation as a man the west can do business with — despite widespread international criticism of his treatment of opponents at home and abroad.

THE NEW YORK POST
-Dozens of travelers stranded by a string of disastrous delays and cancellations at LaGuardia Airport waited for hours in long lines Friday in hopes they could finally re-book their flights. “It’s horrible. They text you all the updates as far as the delays, but when the actual cancellation [comes], no word from anybody,” John Rodriguez, who missed a wedding in the Florida Keys.
-New Yorkers can’t complain about a lack of solid choices in the governor’s race this year. If Democratic primary voters, in particular, are secretly as upset about crime, economic distress and population loss as the rest of the state is, they have a chance to show their ire now, or they might end up with — gasp — a Trump-sympathetic Republican governor in the fall: The nation is in a “Throw the bums” out mood.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: The Fed, battling inflation unlike any it has seen in the past 40 years, could raise interest rates higher than currently expected


Cover Story:
-The Fed, battling inflation unlike any it has seen in the past 40 years, could raise interest rates higher than currently expected—there’s a 89% chance of another three-quarter-point increase in July, although the chances of that happening in September are much lower—while signs of an economic slowdown emerged this past week as housing starts fell 14% month over month in May and retail sales dipped 0.3%: “The Fed needs to bring inflation down, and the growth rate of the economy will be a victim,” says Dave Donabedian, chief investment officer at CIBC Private Wealth US.
That’s scary enough, but the biggest near-term concern for the stock market might be earnings. Right now, they’re expected to be quite good, with analysts forecasting 11% growth to $228 per share in 2022, and 9.6% growth to nearly $250 in 2023.

Interview:
-Economist Lawrence H. Summers spoke with Barron’s by phone about where monetary policy, and the economy. He warned early and often that massive fiscal and monetary stimulus unleashed in response to the impact of the Covid pandemic would result in the economy overheating. He was right: Consumer prices rose 8.6% year over year in May, the fastest pace in 40 years. Summers is now concerned that the U.S. economy is headed for a hard landing as the Fed fights inflation.

Tech Trader:
-Investors have made Apple the country’s most highly valued company largely due to its ability to innovate—to deliver new ideas that can drive revenue even higher. To boost revenue by 10%, Apple needs to find $40B in additional annual sales. That’s about the size of the company’s Mac business, which has been around since 1984, or its entire “wearables, home, and accessories” segment, which includes Apple Watch, AirPods, and HomePods.

The Trader:
-Even the factors that should have helped banks have yet to work in their favor. After years of low interest rates that squeezed profits, higher rates were supposed to provide a boost to earnings. Instead, the bank ETF dropped 3.8% on Thursday, the day after the Fed raised rates by three-quarters of a percentage point. It turns out that investors are less excited about the prospect of growing net interest income when it’s expected the Fed will trigger a recession. It’s a challenging economic backdrop for banks—but they should be able to handle it. This isn’t 2008, when financials were at the center of a global meltdown. Even if the economy is recession-bound, banks are better equipped to handle economic shocks than they were more than a decade ago.
-Small-company stocks have gotten hit hard—harder than their larger peers. That means small-caps could face less risk if the market continues to fall and more upside once it starts to turn. Make no mistake—the pain in small-cap stocks has been acute. The Russell 2000 has fallen 26% in 2022, on pace for its worst first-half performance on record. The worst before now was in 2020, when the Russell fell 13%, and then 1982, when it dropped 11%, and 1984, when it fell 9.5%. The index followed up with a much better second half in all three cases, gaining 38% during the last six months of 2020, 40% in 1982, and 2.4% in 1984. “Worst 1st half ever for small-caps, tends to mean better 2nd half,” writes Jefferies strategist Steven DeSanctis.

Features:
-The transformation of the United Kingdom–based GSK is the culmination of a long process that’s turned virtually all of the world’s largest pharmaceutical companies into bigger versions of biotechnology companies like Amgen (AMGN) and Gilead Sciences (GILD), which sell high-priced, complex medicines, often for rare conditions. It’s a shift investors have demanded—and the science has, too, drug executives say. But by taking away stable revenue streams that cushioned the ups and downs of the drug-discovery business, it could turn Big Pharma stocks from buy-and-stuff-under-the-mattress blue chips into riskier bets. At the same time, it may reinforce the long-term shift that has pulled Big Pharma’s focus toward expensive, specialized treatments and away from drugs for the most common causes of death in the US, such as heart disease and diabetes.
-Many women work successfully with male advisors, and vice versa. In this case, the woman had recently taken over the investments after her husband became unable to manage them. Holland was the fit she was looking for. “As a female advisor, I naturally take other women’s questions, concerns, and worries as valid and important to them,” says Holland, who has $1.7B in assets under management and places 91st in Barron’s Top 100 Women Financial Advisors for 2022.

European Trader:
-A shortage in semiconductor chips caused robotics and industrial automation giant ABB to miss first-quarter revenue forecasts in April, dragging down the stock. But new leadership and the effects of the electrification trend that is sweeping the globe—ABB is the market leader for robotics in China and it also makes charging points for electric vehicles around the world—means this is time for the stock to get a boost. The Zurich-based company has turned a corner since CEO Björn Rosengren joined in 2020, following a decade of disappointing performance. Disruption from a period of deal making caused ABB’s American depository receipts to decline 17% in the past 12 months.

Emerging Markets:
-Alibaba stock has recouped 30% in the past month to a recent $106.45, as Chinese policy makers intent on stabilizing the economy have hit the pause on their regulatory onslaught of the internet sector. Even emerging markets managers bargain-hunting elsewhere in China—in software, financials, or renewable companies while de-emphasizing the internet sector that once dominated their portfolios—expect Alibaba to remain dominant and the go-to spot for anyone trying to sell to Chinese consumers.

Commodities:
-Gold has once again shown itself to be a solid haven investment in the face of market turmoil. Even though bullion prices have dipped a little this year, they have massively outperformed other major asset classes such as stocks, bonds, and cryptocurrencies, which have all taken a beating. It should be a reminder to prudent investors to consider allocating a portion of their portfolio to the yellow metal.

Streetwise:
-What’s next for housing? That’s the question Jack Hough explores this week. Home equity is said to be hitting record highs. Then again, taking comfort there would be like slipping on a financial toupee—everyone knows that underlying conditions have deteriorated. The latest reading on nationwide pricing comes from back in March. Since then, 30-year mortgage rates have shot up to nearly 6%, and applications from buyers have slowed.

BArrons : This Robotics Stock Has Dropped 17%. EVs Might Turn It Around.

This Robotics Stock Has Dropped 17%. EVs Might Turn It Around.

A shortage in semiconductor chips caused robotics and industrial automation giant ABB to miss first-quarter revenue forecasts in April, dragging down the stock.

But new leadership and the effects of the electrification trend that is sweeping the globe—ABB (ticker: ABB) is the market leader for robotics in China and it also makes charging points for electric vehicles around the world—means this is time for the stock to get a boost.

The Zurich-based company has turned a corner since CEO Björn Rosengren joined in 2020, following a decade of disappointing performance. Disruption from a period of deal making caused ABB’s American depositary receipts to decline 17% in the past 12 months. Shares also have a dual Swiss and Swedish listing.

A series of tailwinds could push the shares higher. In its last quarterly update, ABB said its order book jumped 28% based on strong demand from customers across the board rather than any one-off mega orders. This was the trigger for Anders Roslund, an analyst at Pareto Securities, to estimate future sales will rise 30%, to $36.6 billion, in 2024.

“The extraordinarily strong order intake will support better margins in the coming quarters,” he wrote in a note in which he estimates the margin on earnings before interest and taxes will rise from 13.4% in 2021 to 15.6% by 2024.

Revenue could rise further after ABB’s e-mobility division signed a new agreement with Shell (SHEL.UK) in April to provide electric-car charging stations. Shell has about 90,000 charging points, with ambitions to reach 2.5 million by 2030, either at residential, commercial, or Shell retail sites.

Sebastian Kuenne, an analyst at RBC Capital Markets, estimates ABB has 10% to 13% global market share for EV battery-charging equipment and has developed the world’s fastest car charger—the Terra, which has 360-kilowatt output versus a standard output between 50kw and 350kw.

The Shell agreement could generate average annual sales of $50 million a year by 2025 and $130 million a year in 2026-30, Kuenne estimates.

“We do not know how big ABB’s portion in Shell’s installed charger fleet will be,” he wrote. “But even if ABB supplies only 50% of those chargers it would add considerable revenues to the group, accelerate sales growth in the next years and increase earnings visibility.”

ABB, which has a market value of 58 billion Swiss francs ($57.9 billion), employs 105,000 workers in more than 100 countries. It trades at a multiple of 19 times this year’s expected earnings, in line with its peers. ABB posted income from operations of $5.7 billion in 2021, up from $1.6 billion in 2020. Sales in 2021 were $29 billion, up from $26 billion in 2020.

Rosengren, in the first-quarter update, said that increased efficiency would help deliver margin improvement of at least 15% toward the 2023 target.

“Over the past 24 months, ABB has made solid progress in implementing its decentralized organization and improving quality of revenue,” Rosengren told Barron’s. “But we are still not where we want to be. Our technology leadership, aligned with sustainability and the global megatrends, is at the core of ABB’s purpose and gives us a competitive edge.”

ABB will also create value by spinning off parts of its business, including the e-mobility division. The company on June 7 delayed the division’s initial public offering, citing challenging market conditions. Joseph Giordano, an analyst at Cowen, estimates the IPO’s valuation could be about $4.5 billion.

Rosengren said ABB is also eyeing a sale or spinoff of the turbocharging division, which boosts engine power. That could fetch about $4 billion. b

Barrons : The Stock Market Had a Very Bad Week. Why It Gets Worse Before It Gets

The Stock Market Had a Very Bad Week. Why It Gets Worse Before It Gets Better.

After a three-year hiatus, the Golden State Warriors are the best team in basketball again—and they had to navigate an injury-driven tumble from the top to the absolute bottom to do it. There’s a lesson in there about bear markets, recessions, and all the fears gripping investors right now.

After the stock market’s tumble this past week, investors probably feel like Warriors star Stephen Curry in 2020 asking what else could possibly go wrong. The S&P 500SPX +0.22% dropped 5.8%, its worst weekly decline since March 2020, while the Dow Jones Industrial AverageDJIA –0.13% and the Nasdaq Composite COMP +1.43% both fell 4.8%.

It was “the worst stretch of selling in the history of the S&P 500,” according to Sundial Capital Research’s Jason Goepfert, who noted that there were five days since June 8 when more than 90% of the index’s stocks finished lower. The question now is how much more can go wrong.


Plenty. The week’s drop, which sent the S&P 500 into a bear market, was caused by rising bond yields, some weak economic data, and, of course, the Federal Reserve, which raised interest rates by three-quarters of a point for the first time since 1994.

And there’s more where that came from. The Fed, battling inflation unlike any it has seen in the past 40 years, could raise interest rates higher than currently expected—there’s a 89% chance of another three-quarter-point increase in July, although the chances of that happening in September are much lower—while signs of an economic slowdown emerged this past week as housing starts fell 14% month over month in May and retail sales dipped 0.3%.

“The Fed needs to bring inflation down, and the growth rate of the economy will be a victim,” says Dave Donabedian, chief investment officer at CIBC Private Wealth US.


That’s scary enough, but the biggest near-term concern for the stock market might be earnings. Right now, they’re expected to be quite good, with analysts forecasting 11% growth to $228 per share in 2022, and 9.6% growth to nearly $250 in 2023.

But Wells Fargo strategist Chris Harvey expects companies to sound far more worried on their next conference calls in the kind of abrupt pivot that hasn’t occurred since 2007.

“Overall, we think the market has quickly shifted from fears of undersupply to oversupply, and corporate outlooks will shift dramatically as earnings are revealed,” explains Harvey, who recommends avoiding “broken stories,” stocks that include Walt Disney (ticker: DIS), Etsy (ETSY), Netflix (NFLX), and Boeing (BA).

If he’s right, earnings forecasts will have to come down—and the S&P 500, which trades at 15.4 times 12-month forward earnings, isn’t nearly as cheap as it looks. Goldman Sachs’ David Kostin notes that if S&P 500 companies earn $239 and trade at 17 times, the index would trade at 4165, up 13% from Friday’s close. That’s the optimistic case.

But if 2023 earnings come in lower—say, at $225—and the price/earnings ratio slips to 14, the index could trade down to 3150, off 14% from Friday’s close. “Investors looking for value opportunities should consider both valuations and potential downside risk to earnings estimates,” he writes.

Still, it isn’t the end of the world. Jim Stack, president of InvesTech Research, took equity exposure down to 44% this past week, his most defensive portfolio since the tech bubble in 2000. He doesn’t sound down about it. Instead, he’s looking ahead. “The ‘good news’ is that this will ultimately lead to one of the best buying opportunities in decades,” he writes. “But for now, patience is paramount.”

It may take time, but the market will get that winning feeling once again. Bet on it.