WHAT TO DO NOW: Remain cautious. Due to the poor action in growth stocks in recent weeks, we’ve been steadily paring back and came into today with a 61% cash position—just as the market went over the falls this morning with some panic selling. Near term, it’s possible the market will bounce, and indeed most stocks are well off their lows today, so we’re going to hold onto our remaining positions for now—though we’ll be in touch if we make some changes later this week.
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Stocks are getting clobbered today as the selling pressures that have come to the forefront in recent weeks intensify amongst a spate of worries and negative news, from a delay for Nvidia’s chips to recession worries to currency shenanigans to Middle East war fears—though, to be fair, they’re well off the morning spike lows. As of 3 pm EST, the S&P 500 is down 3.1% and the Nasdaq is off 3.8%.
We have many thoughts so let’s get right into it.
First, we’ve taken some lumps along with everyone else, but it’s always important to have a system and a plan—and to follow it even when it becomes frustrating. While the environment has been unusual, the weak action in growth stocks (our Growth Tides and Aggression Index have been negative for a couple of weeks) had us selling, coming into today with a 61% cash position, with everything we’ve sold of late much lower. Sure, we’d rather be 100% in cash on a day like this, but that’s not realistic and we’re glad to have some cushion.
Second, in terms of the market, here’s what we see:
Obviously, most market timing measures are negative at this point and growth stocks, which were already something of a mess, are in even worse shape despite some finding support of late. That said, there’s no doubt today has some panic to it—pre-market, the VIX volatility index was over 60, which, going back to 1990, has only been seen in 2020 (pandemic crash) and 2008, while the NYSE advance-decline line was 16-to-1 negative as of 2:45 pm. Thus, near term, a bounce could certainly unfold—and let’s not forget that long term, this correction is paving the way for some fresh leadership to launch down the road.
That said, the ferocity of the recent decline—the Nasdaq has fallen as much as 16% in 18 sessions, while the formerly leading chip group was off 29% in the same time, with both dipping below even their 200-day lines this morning—implies that, even if the market does find its footing, some damage-repair will likely be needed.
None of that is to say that you should simply hold and hope if you’re still holding a ton of stocks that have cracked. In that case, when breaks like this happen, it’s usually best to take a step or two (at least) in the direction of the evidence in case the decline continues.
In terms of the Model Portfolio, given our already-large cash position, we don’t want to sell wholesale—thus, we’re going to hang on to what we have tonight and see how things go. We could trim back further, and likely will if the sellers stay at it, but many names are well off their morning lows today, so we’d like to see how things develop in the days ahead.
As always, we’ll be in touch with any changes, and don’t hesitate to email me directly (mike@cabotwealth.com) if you have any questions.
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