Last week we saw the S&P500 fall – by just 87 points (about 1 1/2%). The total trading range was around 200 S&P500 points–just shy of a 4% range. Have we seen the bottom? Have we seen a ‘flush’? I don’t think the bottom is in and with continuing talk of tariffs and global threats of more and more tariffs I think the pain is likely to continue. But of course this is just my guess, but I think it is more likely to continue to see the affects of the tariffs and we could easily get unemployment numbers or inflation figures that shock some folks and then we see a flush. Last Friday watching the index grind lower and lower without even an attempt to bounce higher it reminded me a bit of the Friday before black Monday in 1987. Friday was bad–if I remember down 90 Dow points (massive at the time)–but nothing compared to the Monday drop. Let’s hope we don’t see the same result tomorrow. Who knows? We’ll see.
The 10 year treasury closed about flat with the yield the previous Friday–4.26% last week versus 4.25% the week before, but rates did trade up to 4.39% during the course of the week. As one of our commentor’s noted last week there seemed to be a flight to safety (from equities to U.S Treasuries). Yields falling sharply after fairly hot inflation numbers released seemed a bit odd.
This week we employment data on Wednesday (ADP) and official government numbers on Friday.s At what point do the numbers start to worsen with various DOGE activities? This will happen, but when it will ‘hit’ – I have no idea. Can’t forget we have the JOLTs report hitting Tuesday. The big market mover this week will be tariff news–supposed new tariffs hitting Wednesday–who knows for sure?
The Fed balance sheet fell by $15 billion last week as it continues lower, albeit at a pace which should slow substantially over the coming months as the Fed announced a slowing of the ‘run-off’ at the last FOMC meeting.
In spite of flat interest rates last week investors tossed many of the preferreds and baby bonds out with the bath water as the average $25 share fell by 22 cents. Investment grade issues fell by 30 cents, banks by 27 cents with mREIT issues off just 7 cents and shippers off 2 cents. So we had quality issues sold off while high yield held up better.
Similar thoughts that have been talked about here on placing bets on the market just occurred to me. Recently, I think it might have been Bear mentioned SCHD changed its mix of holdings and went heavy on fav horses of tech. I see a lot more bloggers on SA screaming it’s a buy than the outlier article saying hold or sell. Wouldn’t something like SCHD get hit hard in a market downturn?
The tariff issue is definitely affecting the fixed income & equity markets. IMO, Trumps enjoys the attention he gets from jerking people/countries/investors around. However, if both markets completely tank, Trump is enough of a realist to stop the tariff charade thinking that it should stabilize things. At least I personally hope so, although I’m aware that hope is not a valid strategy.
LOL
Long ways off before we can smell the “ blood on the street” ..Right now we have are ear on the railroad tracks listening to the sound of a far away train headed in a tunnel that we can not see the light yet…There will be blood…This regime is dangerous to our health and safety….leaking war plans underestimates the unbelievable stupidity that will only accelerate as time moves forward…
I thought political nonsense such as this was to be avoided here?
I was split on these comments because they talk about the ” _____” aspect of decisions being made and how it is affecting the market and our investments.
We all know this and it’s hard not to say anything.
It’s hard when you don’t think you have said something and when you know you you said it.
I believe the bottom is a long way off…several waterfalls intermixed with dead cat bounces and then a final flush. Keeping some cash and cash equivalents for that time.
Yazzer; I fully agree with you on your comment. People tend to over look the Israel/Gaza/ & eventual Iran conflict. Then throw in the Ukraine/Russia thing and lastly these tariffs & you have the makings for more selling. At my “advanced age” of 74 Iam truly thinking “seriously” if I want to continue to own the common stocks that I still own. I only own 5 or 6 but actually could sell them and probably be just as well off and a whole lot less stress. GOOD LUCK TO ALL.
65 here and hoping for a few bargains but will not go much more that 10-15% of my portfolios…I like sleeping at night! GL to you as well!
Chuck, Good to hear from you. Interesting dilemma. I actually bought a few common ” growth” stocks that pay a dividend this past month trying to be forward looking even though my crystal ball is filled with smoke from all the smoldering economic news. Even I am gripped by uncertainty as to what to hold. Now this morning I need to step back. One of my rules is never to do trades in the morning. Too easy to make a knee jerk reaction. I’ve made more wrong moves than the right ones trading at the open. You need to think about what you want to do and stick with it.
I had to ask myself this morning if I am convinced enough in my trade, would I buy more and follow the price down as it dropped.
I have forgotten my one observation about the market is outside of trading on the economic news it also trades on the herd mentality.
Because of this yin and yang relationship one feeds the other. I think Yazzer is right in seeing there are more negatives right now than positives to which direction the markets are going to move.
I contemplated selling some puts against some growth issues. Say you like NVDA stock but not at $105 where it is today? Or just wouldn’t mind owning it lower? You could sell the Jun $90 puts for about $410 per contract with each $9000 cash-secured put. If it never gets that low, you collect $410 on your $9000 = 4.55% for 81 days of hold which equals (x 365/81) = 20.5% annualized. Of course, you would have be comfortable owning it at $90/share if it goes there (actually $85.90 since you collect the $4.10 in option premium).
These are the kind of things I am looking at right now with tech – though I am more interested in GOOGL, MSFT than NVDA. But, if the market really tanks, even these “bargain” situations will look expensive.
I was doing a lot of this with NVDA, AMD, INTC, GOOGL, UPS, NVO, KSS in 2022-2024 and it worked pretty well but I had to pull out of those positions quickly as the market started to turn. The best days for me to sell the puts were when XYZ stock had a really bad down day, I’d look at the 3 year chart and try and get my cost basis below that level so strike – premium. I tried for 18% annualized return on risk and kept the “cash secured” in yielding securities that didn’t change much in price like some bank preferreds, O, CEFs.
Now, I’m starting to feel like the you guys here though, that we might be at the start of a big dive. Selling out of the money call spreads on up days might be the way to generate some extra income.
Hunter,
Are there any ETF’s or CEF that do the same? It seems to me a fund trading like that would have to be active and of course have high management fees.
Folks looking for feed back on this as I made a commitment to talk to another Financial advisor today and I’d like to see how knowledgeable he is or just trying to push a cookie cutter one size fits all and calling it personalized service.
Not sure if this is what you’re after but there are several ETFs that sell covered calls against a variety of indexes (JEPI, JEPQ, SPYI, QQQI) and even one that uses a covered call strategy vs preferreds (PFFA). The fees are higher but the yields are still good. I see these as pure income positions, and not price appreciation plays.
For CEFs, there’s CEFS which is an actively managed ETF that holds a curated list of CEFs.
There’s also an ETF of AAA rated CLOs that’s paying 6.2% (JAAA).
Chuck you got me to thinking and I decided to sell my KLG today. Actually wasn’t a long term hold at this time, more of just a trade.
ChuckP and yazzer
We are all wrestling with the question: “What is the right mix of common/prefs/bonds/CD’s/fixed/floating/gold in today’s uncertainty?”
My solution has been to break my holdings into separate boxes of each of the above. My overall balance leans towards stagflation being the winner. I.e., emphasis on quality, short duration, debt over equity, and gold/silver/SH hedge.
Over the past 10 days I have watched emotion drive the various portfolios up and down with the overall effect of a net marginal gain. When fear drove SPY and QQ down, the hedges balanced it. When “Risk On” bounced the market up, the Common won big, absorbing the SH losses.
Through every cycle, gold/silver keeps climbing and long term rates keep dropping..
My crystal ball sees recession as the train light in the tunnel.
But I have no doubt that there will be strong bear rallies that will crush overly negative biases.