Market Thoughts and Positions - 8/1/24: We are still in a Jekyll and Hyde market and it's probably going to persist through August. Whether orchestrated because of the talking heads working very hard to talk up the summer swoon or because the market had come too far too fast, it doesn't much matter. The rallies are being sold and the path of least resistance is down. That is pretty clear to me.
There was only a couple % point chance that the Fed would reduce rates and I think it could have been justified rather than waiting until Sept. We're seeing some weakening and the consumer is pulling in their horns. It's now a delicate balance between a soft landing and recession. With a 25 bps cut which would still take time to work its way through the economic system, I think they should have gotten it underway, but I'm only a closet amateur economist. That said, I was pounding the table for them to start raising when inflation was clearly percolating at the core level, but they got politicized by Trump and browbeaten into not acting. I don't know their jobs nor do I pretend to, so I will continue to simply assume they are objective and doing what they feel is best.
In either case, it looks like the markets needed to come down and this is healthy. It's taking the wind out of the AI sails which needed to happen to provide for the next leg of growth/rally. I don't see anything systemic wrong here, just a valuation washout to reset things.
Let's talk about some of the moves I've been making, stocks I am watching and the likely trades coming in the days to come.
I continue to believe the narrative that this AI trade is the most investable period in the market's history for as long as I can remember. Or at least even with the .com rise. We know how that ended, but for those of us in AAPL, MSFT, GOOGL, DELL, CSCO, META, INTC, etc. etc., major wealth was created. Even if you traded JDSU, SDLI, VRSN, etc. Boom, bubble, bust, consolidation, rise.
I'm continuing to focus on a split of issues being dividend paying value stocks and top name tech stocks. I'm not timing the value income stocks at all. If I see them and I like them, I buy them. I continue to break most all entry positions into 3-5 individual trades to average in. You just can't be in a rush to purchase. No need and there's every chance you will get it cheaper, especially with the fast moving AI trades.
For the fixed income:
I rotated out of SWVXX, Schwab's money market fund paying about 5.15%. I wanted to wait until just before the Fed cuts to juice that income orange. It has been juiced and I have now rotated into some collection of VCSH, AGG and SCHI. LQD is on that list as well but I haven't made any purchases there. I liquidated about 90% of my MM fund into mostly VCSH and SCHI. My belief is that MM % will begin declining and bond prices will start rising. Yes, that means yield on the bonds should be decline as well, but you'll get price appreciation on the ETF. Within the last week, I am now seeing that rotation occurring. The only MM (SWVXX) money I'm keeping handy is for any near term cash needs, projected or not. It will still pay an aggressive rate for probable at least the next 4-6 mos. before it starts eroding to a level where it makes more sense to seek other opportunities. I wanted to be ahead of that curve which is why I rotated into the specific ETFs.
I don't play a complex bond game, choosing between individual bonds and ETFs. I'm not interested in threading that needle. If you aren't going to buy the bonds at auction, then you are buying after market and a lot more complexity is found when you need to start looking at the premium you are paying, Yield to Maturity, Yield to Worst, etc. etc. My bread isn't buttered there.
For value-income stocks:
Always looking for decent entry opportunities and I have not trimmed many names I'm currently holding. The only names I have trimmed outside of tech are the financials which continue to rip (not today). The environment is still very good for them but like CRWD, you never know when things will turn which is why it's important to trim when weights get high. I did take profits in NVS a bit too soon.
LYB - Already a nice little % gain in this name but it's a long term hold with a 5.4% income rate. Looking to add two more positions but waiting it out.
CVS - I continue to add as I can or as I see weakness. When I make positive tech trades, I'll just pad the position with another lot of CVS. I expect them to be back in the $70s soon. Much like MMM, sometimes you just have to wait.
MMM - Speaking of MMM, I am in trim mode on the name after the big rise. Still carrying it for the income but when it had that big gap, I had to lighten the load a bit. Some retracement can be expected.
AMT - Another down and out income/value play I've been sitting on is AMT which is now finally in full rip mode. I don't recall my entries on this one but they are listed on the thread. I want to say average cost is about $190. Because of the rise, yield is now just below 3%. Not adding more here, just enjoying the ride.
AEP - Hitting a new 52WH. The narrative is great for this one and NGG, my other utility. Especially AEP. It trades a little like a tech stock but I've held it for years. Not adding more here after my last addition maybe a year ago. The 3.6% yield as it rips higher is nice.
BGS - This is a position trader for me and I'm currently flat. Was hoping to see it retrace back below $8 but it is creeping higher, probably due to healthy yield. Looking to reenter near $8.
SCHD - Schwab Income ETF that just performs. Yield at 3.6% and I treat this a lot like a bond fund for me but when I want equity instead of fixed income.
NKE - Still building a position in this beaten down name. Not a huge yield (2%) but I still want another position or two for this long term hold. Paid to wait and I think there's 20-25% upside.
UPS - About to take a position in this name again. Sold MUCH higher as part of a very small loss harvest and I think it's time to get back in with a long term hold.
Tech/AI Stocks:
NVDA: Continuing to look to trim the positions BUT, I'm considering a longer term call play at the $100 level. Still eyeing the $95 level.
ARM/AMD/MU - Already established first positions in these names. I'm not worried about timing them perfectly. AMD and MU were very recent purchases on weakness, first positions. Looking to add second positions, maybe today/tomorrow. ARM is a stellar company though not a value name so it's trickier. Still looking to add another position or two in ARM
MRVL - A step behind the three above but I'm bullish on the name and they are another company I have targeted as a core AI holding.
AVGO - Love this name as much as NVDA and adding where/when I can but prioritizing ARM/AMD/MU.
QCOM - BIG sell off and worthy of addition here. I trimmed it over $200 just recently and may need to buy it back.
Other AI names I'm looking at due to position in the space, opportunity, etc.:
VRT & CDNS
Other general names I'm watching, considering, researching:
LULU - Trying to determine if this is UA or a big opportunity. Leaning toward the latter but not sold.
HUBS - I'm intrigued. Low float, interesting forward valuation around 68 but not cheap.
CMG - Still building a position and looking to add if I can get below $50 again. Current avg is $51
Trading Position:
CLF - Finally back into the $14s which means a trade is incoming
BGS - Already mentioned but not doing anything here
SOUN - Another favorite trading position and getting close to that $4 level I like.
That's all for now, stay safe out there!
J |
