Investing Update: Panic Creates Opportunity
What I'm buying, selling & watching
This week was filled with turmoil which spilled over from the week prior. It turned out that first thing Monday morning at the open was the low for the week. The S&P 500 was up 2.53% and the Nasdaq was up 5.27% from where the week opened. That’s quite a feat when you take into account all that went on this week.
I sure didn’t have a bank run or another banking crisis on my bingo card for the possible events that could happen this year. Now there had been people cautioning that something was going to break due to the fast raising of rates by the Fed.
On March 4th in my Investing Update: Insider Selling Jumps I mentioned the likelihood that something was going to break.
A great chart here from BofA which shows the US Fed Funds target as it creeps higher tends to usually break something. With the consensus outlook that the Fed is going to continue to raise even higher, the likelihood that something breaks again grows.
Something sure did break. Silicon Valley Bank was the 16th largest bank and has now collapsed. We saw rates go from 0% to 4.5% in only twelve months time. A rise with that much speed and velocity has not happened before.
This is why there was a large belief that something was going to break. To me this signals the Fed will end the continued rate hikes. I think they will raise 0.25% at the Fed meeting next week and that will be it. I don’t think they should and if they don’t, I will not be surprised. The events that transpired with the banking industry will change their tone.
The bigger question is if we’ve seen the end of the banking crisis. Once the 11 major banks pledged $30 billion in deposits into First Republic on Thursday it calmed fears. The hope is this will end the current banking crisis. The unknown though is if this is a one-off event or does this have a tail and a contagion risk down the road? Time will tell.
Positioning Relative to History
Relative to history we’re still seeing investors overweight bonds, banks, emerging markets, cash, commodities, staples and utilities. They still are way underweight tech and equities. This is the similar positioning that we saw in 2022. I’ve said extensively that investors are not positioned for a rally across tech, growth and the market as a whole.
New Lows List Highest Levels Since October
The number of security instruments (stocks, ETFs etc.) that hit a new 52-week low is the highest level since October 2022. That’s important to keep in mind because the current bear market bottom is 3,491, which was in October 2022.
People Aren’t Buying Stocks
The allocation to equities is the lowest since BofA started their survey in 2017. It’s really quite a bit lower than where equity exposure has been over the last six plus years. There just isn’t an interest in buying stocks at the moment.
People are more interested in holding cash and bonds than stocks. Vacations still seem to be a high priority for consumers as well.
Moves I’ve Made
Bank of America BAC 0.00%↑ During the banking criss selloff, I decided to start a position in Bank of America at $28.50.
I watched as the entire banking sector and all banks were heavily sold off. My feeling is some were lumped in and oversold due to panic. In addition to Bank of America I compared research on JP Morgan JPM 0.00%↑, Wells Fargo WFC 0.00%↑, Schwab SCHW 0.00%↑ and Morgan Stanley MS 0.00%↑. None of what was transpiring was going to affect the long-term outlook and businesses of any of these. At least I don't think so. I go back to the thinking that I shared in a past post, Buying Stocks On Bad News.
My decision came down to Schwab, JP Morgan and BofA. BofA was my pick as it just took out its 52-week low. By valuation standards it’s also the cheapest with a P/E of 9. (JP Morgan 11, Morgan Stanley 13, Schwab 15 & Wells Fargo 12) The company is back to book value. Dividend is over 3%. Higher than JPM and Schwab. It’s the second largest bank with 85% of net revenues coming from U.S. customers. It has over 4,000 branches as well as the respected Merrill Lynch wealth-management business. Plus, I uncovered that BofA is Warren Buffett’s second largest holding behind Apple. It makes Berkshire Hathaway the single largest shareholder of the company.
Deere DE 0.00%↑ I added to my position in Deere at $398 a share. This is considerd an industrial stock but has a lot of innovative technology coming in the future. If we see a rotation from value stocks to tech stocks, Deere could get sold off, in which case I will look to buy even more.
The Coffee Table ☕
Thomas Kopelman wrote The Most Debated Personal Finance Topics. In this he shares his opinions on each of the eight topics. I enjoy Thomas’s viewpoints and how he approaches certain topics.
My favorite business writer Morgan Housel has started a podcast, The Morgan Housel Podcast. I really enjoyed his first episode, The Art of Spending Money. It’s under a half hour and he doesn’t add unnecessary content to fill time or space. Similar to his writing.
The best cocktail cherries that I’ve found are Luxardo Original Maraschino Cherries. These are the gold standard and now the only cherries I use in old fashioneds. They’re made in Italy and once you have these, you’ll never want any other.
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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.