WASHINGTON – Given that September is usually the cruelest month for traders and investors, Wednesday stock market trading action coasted along in a relatively benign fashion. But today, the selling hammer came down again. So stocks are tanking again, just as they’ve more or less continued to do this month. For sure, the Bad News Bears have returned to batter stocks once again, as we remain in a tight trading pattern.
The Dow is currently off nearly 1%, while the S&P 500 is trying to approach a negative 1.5% on the downside. Meanwhile, the still likely overpriced tech sector, as judged by the NASDAQ, is getting clobbered and is nearly off 2% as we write this article, circa 1:30 p.m.
Revolution? Civil War? Headline risk increases risk to our portfolios
We’ll keep today’s edition fairly short. That’s because we think it’s going to be like this for another 2 weeks or so, or perhaps longer. September is a historically bad month for stocks, and this one is shaping up to match that expectation.
But we’re also dealing with the closest we’ve seen to a new (and ominous) American Revolution / Civil War since our last encounter with the New Left in 1968-1972. Problematically, however, while the Democrats were largely the victims of that earlier uprising, they seem to be the cheerleaders for this one.
Any prolonged chaos over Election 2020 – which the Democrats and their black clad Antifa / BLM Storm Troopers intend to cause – could erupt in a very real and perhaps uncontrollable level of violence. We suspect markets may not like this very much.
Don’t panic. Yet…
On the other hand, while remaining vigilant over political and headline risk this fall, traders and investors needn’t withdraw entirely from the market this fall. But we’d immediately suggest that all investors carefully examine their portfolios and trim positions that haven’t been working for them as planned. Having some cash going into October would simply be prudent.
Should the bulls – and the Republic – pick up their game in October and /or November, those holding at least some positions will be ahead of the game, in that we could experience one of the greatest relief rallies ever, as Washington (perhaps) calms down after an initial sh_ _ _ storm and the coronavirus fades from the front pages as has already been planned by TPTB (The Powers That Be).
On the other hand, what if Satan comes drifting up from Hell this November, yelling encouragement to Antifa / BLM and a legion of Bad News Bears as well? A prudent reaction might include dumping any existing positions, cashing out, and then stuffing our remaining money into our mattresses. (Can we do that legally in an IRA? Can a mattress be a custodian?)
We’re sort of kidding here. But flexibility is paramount this fall. Doctrinaire positions and vows are of no use in this climate, since everybody will ultimately be wrong to a certain degree.
Some sage advice from investing guru Tom Bowley
Practically speaking, Tom Bowley – writing in the free area of Stockcharts.com, has similar advice.
“Trading in the short-term with rotation favoring value stocks will be difficult. It’s likely been difficult during September for many of you as it’s been tough for me as well. I’d suggest keeping things as light as possible for now.
“Remember that we’re approaching the worst time during September – the 21st through the 27th. I believe things will set up nicely for another pre-earnings advance in October, but we can’t force the issue too early. From a longer-term perspective, this weakness will present a nice opportunity to build portfolios for likely Q4 strength. I remain quite optimistic in that regard…
“The Fed yesterday told us that there are likely to be no rate hikes for the next 3 years. If that’s true, and our economy strengthens and company profits grow, I believe we’ll see a MASSIVE bull market run higher. The deficit won’t matter. It won’t matter who’s in the White House. Another round with the virus this winter won’t matter. It just won’t matter.”
Dunno whether we agree with that platform agnostic view about whoever gets the keys to the White House for 4 years beginning next January. The Bad News Bears may indeed romp once again anyway, no matter who wins Election 2020. (Which we probably won’t know until Election 2028 at the earliest.) But otherwise, we’re tracking with Tom Bowley here.
So it looks like we’re in good company, eh? Apple and Microsoft
The optimist in us, however, persuades us that picking up a few shares here and there of Apple (trading symbol: AAPL) and Microsoft (MSFT) might be a good idea. Both continue to rally a bit, but then sink some more. But they’re likely to recover sooner than other techs. Microsoft, in particular, seems to have been born again since the awful Steve Ballmer departed as CEO. It’s becoming a classic Old Growth stock now: Slow and steady wins the race.
Apple remains more exciting, but also more volatile. But, unless you’re an inveterate day trader (which we are not), day trading is risky business unless you stay at your machine all day with only furtive coffee breaks from time to time. Microsoft remains the safer bet in this environment.
If the Bad News Bears camp out, is it “lean portfolio” time?
At any rate, we continue to follow our own advice by trimming floundering positions, even taking the occasional modest loss to do so. 2020 has been a surprisingly difficult year. Without coronavirus and without at least one political party needing group institutionalization, none of us have ever experienced broad-based political and medical chaos at this level during a time of (alleged) peace.
The last time the country went this completely nuts was in 1860 when a gawky, incredibly tall and ominously bearded Republican – the first in the nation – took office as the nation promptly split into 2. Rightly or wrongly, he was viewed, in retrospect, as the first Donald Trump. And it was the Democrats who led the split.
We’ll find out soon if history does really repeat itself on that level. In the meantime, let’s shore up those portfolios and develop a Plan B and a Plan C. That way, we’ll have both if we ever need them.
Gotta run. Stay safe.
– Headline image: Wile E. Coyote grabbed onto the tech-heavy NASDAQ on the wrong day.
(Warner Brothers cartoon still via YouTube video, as modified for satirical purposes by T L Ponick.)