The downside in the markets may have some investors sharpening their pencils as they look to a shopping list for key stocks…but, as always, discipline is critical.
One of the hardest things to do is to take emotion out of the equation…and when a sell-off like this is underway, one needs to be able to sleep at night. The question is whether it continues.
Many investors believe there’s a good chance we head sideways for a bit while still cautioning that the market could grow more challenging… nonetheless, there are a few things in this market’s favor, including an overly aggressive Federal Reserve.
As I’ve explained, I’m not a fan of the Fed’s policies because they tend lead to inflation in equity prices at the expense of the middle class.. but, nonetheless, Fed policies are also helping to inflation in equity prices. Jerome Powell, like his predecessors Janet Yellen and Ben Bernanke, has established a kind “put” on the markets and whether we like it not (I don’t) it’s there.
Meanwhile, there are some fundamental signs that are quite encouraging and worth paying attention to. The unemployment rate has fallen to 8.4% amid the addition 1.4 million jobs in our economy in August. It shows us that if the government would simply get out of the way, then the American economy can and will grow.
Positive signs aside, sources tell me this sell-off is somewhat expected, as valuations have gotten so rich, especially among one of Friday’s hardest hit sectors–technology. Recent volatility in the tech options market has suggested fear amid valuations that continued marching higher…and, there is growing concern that without much in the way of earnings transparency, there’s little to back-up the lofty multiples. Meanwhile, as I’ve pointed out…you cannot ignore the political insanity of the moment. Increasingly, we run the risk of appearing like a dysfunctional Banana Republic amid a growing chorus from the left, including former Democrat Presidential nominee Hillary Clinton, that Biden should not concede.
As a result, the smart money is pivoting out of names that have reached their peak while still seeking new opportunities.
Re-Stacking the Deck in Search of Opportunities
Adam Johnson, Founder of Bullseyebrief.com, tells me he’s re-stacking his deck. A veteran money manager, a former Bloomberg anchor (my former co-host, in fact) runs a research firm for stock pickers focused on strictly American companies. He tells me he’s moved out of several of stocks he’s owned for months because they hit their targets last week…including, HCA Healthcare, Mastercard, and Qualcomm. “On this dip,” he says, “I’m replacing them with great examples of American ingenuity trading at more reasonable prices including, Boeing, Ballard Power and WPX Energy.”
Adam cites a low rate environment coupled with an economic rebound as reasons to still seek buying opportunities. In addition, he suggests that recent progress on Covid is another reason to selectively put capital to work.
Bottomline: there are always opportunities. Investors just need to find them. Like anything else, diversification is essential and those with money to invest must be vigilant.