Investors Can Learn From Boeing’s Jet Door Blowout. How to Handle a Big Shock.

Investing in stocks right now is a lot like flying on Boeing planes.

Despite excessive reason after several dramatic accidents to worry if the troubled company’s jets are safe, it’s hard to avoid flying on them.

Similarly, investors have little choice but to buy U.S. stocks, even though the risks of a correction are compounding faster than the potential to earn sharply higher returns.

But unlike the accidents that have punished Boeing shares, nothing has yet happened to shock investors out of U.S. stocks. The specter of regional wars in Europe and the Middle East sparking World War III, recession fears, interest-rate volatility, and even historically high stock valuations have had little impact, if any, on rising share prices.

A question worth pondering is what could shatter investor confidence in the seeming infallibility of U.S. stocks. For years, making money has been as easy as buying a handful of major names, including Apple, Amazon.com, and Nvidia, or, for those looking for an easy way to get broad exposure, exchange-traded funds.

The market is perceived by an increasing number of people as immune to tragedy. Investors need to challenge themselves to think about what could be as shocking to the market mob’s sensibilities as a plane door on a packed flight opening at 16,000 feet. The Alaska Airlines incident has quashed a widespread belief that Boeing is once again a good investment, after 737 MAX jets crashed in 2018 and 2019.

Just a few weeks ago, many investors were confidently asserting that Boeing was a sound investment because it was one of the world’s two major jet makers and people always have to fly.

After rising some 49% since late October, Boeing stock, now at $200.52, has fallen 24% in the past few weeks. It could soon push past its 52-week low of $177.73.

Even worse, the stock has fallen through key technical levels, such as breaching the 50-day and 200-day moving averages, that suggest profound losses up ahead.

The company’s reversal of fortune illuminates the dangers of overconfidence, something many investors have forgotten. Since the 2008-09 financial crisis, investors have been more concerned with failing to make money than with monitoring risk.

A future postmortem of the 2020s may reveal that the investor rallying cry of There Is No Alternative, or TINA, to U.S. stocks belied a mass psychosis.

Investors have become so used to stock prices always rising over the past 20 years that the old idea of buying low and selling high has been replaced by a faith in buying high and buying higher. Chalk it up to the Fear of Missing Out, or FOMO.

Consequently, the Cboe Volatility Index or VIX, which was long ago dubbed the stock market’s fear gauge, has been distorted into a greed gauge.

When the VIX falls to unusually low levels, as it is now, investors no longer assume it presages a correction. It is now seen as a sign that bullish call options—which give holders the right to purchase an underlying investment at a set price within a certain period—are cheap stock surrogates. This marks a shift from years past, when a low VIX prompted many investors to buy bearish put options for fear that too many investors had grown too greedy and that a market correction might be imminent.

So far, nothing has made investors question the wisdom of buying higher and higher. Risk factors that once chilled the market pile up on the sidelines as reminders that the greatest risk of our financial time is the failure to buy stocks.

We thus find ourselves increasingly wondering: What is the market equivalent of a Boeing jet door ripping off midflight and shocking investors back into a normalized view of risk and reward?

Anyone who answers that question, and positions correctly, will never need to fly commercial again.

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Originally Posted January 17, 2024 – Investors Can Learn From Boeing’s Jet Door Blowout. How to Handle a Big Shock.