Investing Update: Can This Rally Hold?
What I'm buying, selling & watching
We closed out July with the best month since 2020. That was the best July since 1939.
The S&P 500 was up 9.1%. The Nasdaq was up 12%. Amazon (AMZN 0.00%↑) was up 27%. It’s largest monthly gain since October 2009. Apple (AAPL 0.00%↑) was up 25%.
Below is a look back at the monthly returns of the S&P 500 over the past few years.
The better than expected earnings from big tech has turned in a nice bear market rally. Also the Fed made light that we’re close to neutral, indicating not need to further increase interest rates. To me it looks like these have been the two pieces of news that have helped carry the market higher.
What we’ve seen during the bear market is when the VIX gets into the 30s people start buying and the market goes up. Once the VIX settles back down in the high teens, the market goes back down. The VIX just closed at 21.
I’m expecting people to take profits and the market to go down from here. If I had any stocks that I want to trim or sell, this is the point I would do it.
In a bear market and in the midst of a recession you have to remember the history of bear markets. I shared these two charts from the last two bear markets back in my post from June 4th, Investing Update: Insiders Have Been Buying.
Bear market rallies that don’t hold tend to be followed by lower lows. It’s also why when you hit new lows, it’s a good buying point to buy something. To me this feels like a textbook bear market bounce. I expect to see us retest the June lows. Remember patience is the key. Stick to long-term plans.
Everyone Is Hiding In Cash
Leading up to this bounce we’ve seen extremely high levels of investors in cash. From the BofA Global Fund Manager Survey you can see that we’re seeing the lowest allocations to stocks since October of 2008. A clear sign of a risk off period and they prefer to be in cash. Now remember that the bottom of that bear market was not in October of 2008. It came five months later and bottomed on March 9, 2009.
The same can be said for the individual investors. They’re also sitting in cash at the second highest level of the past two years.
Big Tech Stocks Being Bought
A signal of what may be bought first as the market turns around will be large cap tech. Retail investors have started to buy large cap tech stocks at as high of a rate as they did in early 2020. This basket has been very oversold and now we’re starting to see retail investors stepping in to buy them.
Why Invest?
If you’re reading this and a subscriber of Spilled Coffee you don’t need to be convinced of why you need to invest. But if there was a chart that illustrated the reason why to invest your money, it would be this chart.
Moves I’ve Made
The only buy or sells I’ve made in July has been my monthly contribution into the S&P 500 index fund (VFIAX). My August contribution just went in early this past week. These have been the only two executed moves I’ve made of late.
My last individual stock buys were at the end of June. They turned out to be timed very well. I wrote about them in my July 2nd Investing Update: My 2nd Half Game Plan. Here were the three buys I made.
Nvidia (NVDA 0.00%↑) at $149.75. Since it’s up to $189.89, a gain of 26.8%
Tesla (TSLA 0.00%↑) at $650. Since it’s up to $864.51, a gain of 33%
Uber (UBER 0.00%↑) at $20. Since it’s up to $32.01, a gain of 60%
I have buy orders in for Nvidia and Google (GOOGL 0.00%↑). These two stocks are the two most oversold stocks in my opinion. I think first is Nvidia and then Google. Both are big positions of mine already and I don’t want to let them become too high of a percentage of my portfolio, but it’s really tempting the longer they stay oversold.
I had a buy order in on Generac (GNRC 0.00%↑) but have since removed it.
After listening to the Generac conference call I need to do some more work to see why it was down so much. I thought their earnings and call sounded very good. They beat across the board. What worried me was at the release of earnings, the stock was up over 6%. But it ended up closing the day -6%. That’s a 12% intraday swing on a positive earnings report.
There has been some very high short interest which may explain why it has been red since reporting. I want to get a better understanding of those reports before I do anything else regarding this name.
On the plus side my Generac generator is due to be installed next month!
What I’m Watching
I’ve added a third stock to the top tier of my watchlist. I had Deere (DE 0.00%↑) in my second tier but after doing some reading my view on Deere has increased. It took the spot of Cleveland-Cliffs as I’ve moved that down a tier.
With the looming food shortages, grain and fertilizer issues from the war. Growing and getting crops to feed the world population over the long term makes this an interesting play long-term. There is a replacement cycle for farmers coming up with an emphasis on self-driving tractors. It’s cheap with a P/E of 17 along with a very solid ROE. Plus it’s still down over 50% from the highs. Like Lululemon (LULU 0.00%↑) and Target (TGT 0.00%↑), I’m watching Deere as a long-term position.
As we revisit back downward in the eye of this bear market, I like all three of these names if they reach levels. I’d like to hear how their upcoming earnings reports are. Deere reports 8/19, Lululemon 9/6 and Target 8/17.
Then I want to assess their long-term growth trajectories and see which provides the biggest upside return. That will ultimately decide which I buy into first. Right now I think in order it would be Lululemon, Deere and Target.
Thank you for reading! If you enjoyed Spilled Coffee, please subscribe and/or give a gift subscription for others.
Spilled Coffee grows through word of mouth. Please consider sharing this post with someone who might appreciate it.
Disclaimer: This is not investment advice. You should not treat any opinion expressed as a specific inducement to make a particular purchase, investment or follow a particular strategy, but only as an expression of an opinion. Do your own research.