Investing Update: Is Everyone Now Bearish?
What I'm, buying, selling & watching
The enthusiasm that had started in mid-August has been sucked completely out. Since Fed Chairman Powell made his comments in Jackson Hole, the market has gone down 6.5% in six trading days. The day of his speech on August 26th, the S&P 500 and Nasdaq had their worst day in two months.
It seemed the combination of Powell’s comments and the approach to hitting the 200-day average slammed the market back down. The trend line of the market 200-day was hit with the resistance of a concrete ceiling. It got near and then fell like a rock.
We’ve now been below the 200-day average for 102 days and counting. As the chart below shows, the S&P 500 is in the midst of the 5th worst year through eight months in history.
How about if you have a traditional 60/40 (60% stocks & 40% bonds) portfolio? That has seen the worst start since 1976.
Now we enter September which is traditionally one of the worst performing months of the year. The S&P 500 is only up 44% of the time in September.
I’m watching the 3,900 level on the S&P 500. If we breach that, we’re heading back to the June lows. The S&P 500 closed the week at 3,924. Maybe the Santa Clause rally will start early this year. At least we can hope!
Don’t Fight the Fed
A week ago on August 26th at the Jackson Hole Economic Conference, Fed Chairman Jerome Powell reiterated the Fed’s plan to bring down inflation. The comments below from his speech makes things very clear.
While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.
Pain is mentioned twice in the comments above. Investors and consumers should understand that if this is the plan and they stick to it, we’ll experience further economic pain. People need to understand that you just can’t try to fight the Fed.
Net Short Positions Grow
Investors and hedge funds have ramped up their short positions against the S&P 500 futures. This means traders (mostly hedge funds) have increased their bets that the S&P 500 will fall. We’re now at levels not seen in two years.
With this much short interest and bearish activity, is when I want to be contrarian and get bullish. I just keep going back to the fact that markets don’t collapse when everyone is hedged and betting against it.
Sentiment Is Shifting All Bearish
Bullish sentiment is at an 8-week low and bearish sentiment is at an 8-week high. When everyone gets to one side of the boat and it gets too much weight, we know that it may be time to get on the other side.
Moves I’ve Made
Nvidia NVDA 0.00%↑. Added to my position at $138. It hit a new 52-week low after the US imposed a new license requirement for the company's AI chips to China and Russia. My feeling is this is another short-term related negative story for Nvidia. Very long this name.
Nvidia has traditionally been a very volatile stock. This is a chart of the drawdowns in the stock since 1999 when it came public.
My Plan Forward
I’m not very confident that we head higher from here. In my last Investing Update I was feeling bullish and that we could bust out of this bear market. Well, I was dead wrong on that assessment.
I’ve made a few buys, but for now I’m planning to hold pat. I’ll be contributing some more cash to get positioned to start buying. Like I said above, I’m watching the 3,900 level on the S&P 500. With as volatile as the markets have been I’m still happy with being fully invested.
My focus is the long-term. Everyone’s investment goals and thesis is different. I’m looking out many years. That is why I bought more Nvidia. It’s why the week before I bought more Google GOOGL 0.00%↑and before that Uber UBER 0.00%↑. What companies years out will be higher than they are today?
With a long-term time horizon the 7 mega-cap tech names are a good place to start looking. As you can see the drawdowns in these companies is steep. But 1, 3, 5, or 10 years from now, how many of these companies will be worth more than they are today? That’s how I’m viewing the market and individual stocks.
The Coffee Table ☕
Thomas Kopelman did a post called 7 Helpful Personal Finance Calculators To Use. I refer to these often and it’s a good post idea to have these all in one spot.
Kiplinger had a story about getting health insurance if you retire early. I Can’t Retire Early - I Need Health Insurance. Gives great tips on how to get your health insurance in order if you want to buy it on your own.
If you’re into watching movies, I watched CODA again. It won best picture and it’s one of the best movies that I’ve seen in years. The other movie that if you haven’t watched it yet, you better get to it, is Top Gun: Maverick.
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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.