Suffice to say it’s been a tough week. As we head into a weekend that can’t come quickly enough, the main market indices are down over 2.5% and many, many stocks are 20%, 30% or 40% off their highs (some are better, some are worse).
Despite the turmoil, we are seeing signs of stabilization in some names. The best way to describe this action is a rolling crash. Credit to Cabot’s Mike Cintolo for bringing that term back to the forefront of the conversation on an internal chat tool this week.
The basic premise of the rolling crash is that it – no surprise – rolls through the market hitting different groups of stocks at different times. It’s very unpredictable, and only comes into focus after the process is well underway, as is the case now.
We’ve sold a few names in recent weeks, but we still have a decent amount of market exposure. That’s worked against us this week. At the same time, having decent breadth in our portfolio means more names to pore over for those looking to add exposure on the pullback.
Whether you’re a buyer or a seller likely depends on your overall market exposure, amount of cash on the sidelines and risk tolerance.
I think all of our stocks have tremendous upside potential from current levels. So I’m hesitant to be too aggressive on the sell side right now. The obvious downside to this strategy is that if the market takes another leg down our portfolio will suffer.
That said, as mentioned before, I’m seeing enough evidence of stabilization in some names (not all) that I’m willing to (mostly) sit pat for a little longer.
If you need a little emotional support to help you get through this, just remember that many of our biggest winners have been through markets just like this and come out the other side just fine!
We’ll continue to take things on a day-by-day basis next week, and over the weekend I’ll be reviewing all our positions again.
Before I sign off, I want to share a few quickfire notes on some of the speculation that’s circulating out there as I think it helps explain why the market is so on edge right now.
- Omicron is more resistant to vaccinations and previous infection.
- Vaccination and previous infection are still likely to dull the impact of Omicron.
- Omicron symptoms are milder than other variants (i.e., Delta).
- If Omicron becomes the dominant strain and is mild, that could be good as it squeezes out more severe variants. On the flip side, if symptoms turn out to not be milder, and Omicron evades vaccine/prior infection, that would be very unfortunate.
- Interest rates have been seen rising in 2022 based on Powell commentary about pulling back stimulus. This has been expected for some time.
- Actual interest rates (10-year Treasury) have fallen quickly over last two weeks. The 10-year Treasury yield is currently 1.36%, versus 1.67% on November 23. That is a material decrease.
- Yields imply Fed won’t raise rates higher than 1.5% to 2%.
- Higher interest rates could dampen investor enthusiasm for growth stocks.
- But a more messed up global economy might mean accommodative policies for longer.
- Concern over higher rate impact on growth stocks overblown, provided rates don’t explode higher.
- Inflation expected to be more durable than previously forecast.
- Everybody is getting into Crypto.
- Crypto could become a systemic risk, if not properly regulated.
- Tax-loss selling is happening now.
- Some investors just stepping back from market so they can enjoy the upcoming holiday period.
- We should know more about Omicron in a week or two.
Bottom line – there is always a lot of noise out there but right now it’s especially noisy. That means a ton of uncertainty, which markets do not like.
On the flip side, the market will go back up at some point. The key is to make sure you’re ready to participate once it does. If you’re not sure you are, spend some time this weekend thinking over what adjustments you need to make in your portfolio so that you are.
And as always, please don’t hesitate to reach out with questions, commentary, whatever.