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My Gut Feeling For Today, August 17, 2022: Back to Risk On

My Gut Feeling For Today, August 17, 2022: Back to Risk On

August 17, 2022
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When I wrote last [ July 25, 2022 ], I outlined the earnings and economic calendar that the markets were about to face. It was, as I described to my daughter Carly, Stock Market Hell Week. We had a slew of corporate earnings reports, including the mega-cap tech stocks Microsoft (MSFT), Alphabet (GOOG / GOOGL), Apple (AAPL) and Amazon (AMZN). Expectations were low for those reports given the notion that markets were in a bear market and the economy was in a “recession”. All those companies had excellent reports and while some early responses were negative, any selloffs were quickly reversed, and the stocks went on a tear. Of course, as those companies represent a large part of the major indexes, the indexes caught solid bids as well.

The FOMC raised its short-term Fed Funds rates by 75 basis points and Chairman Powell’s commentary and responses in the Q&A were more dovish than hawkish, further adding to market gains.

Since July 22 (July 25 was a Monday) the Standard & Poor’s 500 (SPX) rose 8.04% and the NASDAQ 100 (NDX) rose 9.43%. From the trough levels before July 22, those indexes gained a few more percentage points. Thus, if you naively believed that we were amid a bear market in growth stocks, or stocks in general, (I did not) the risk on trading of the past few weeks should have wiped out any bear market beliefs.

The shift from dividend/value to growth stocks was visibly apparent. What you should have been doing, as did I, was eliminate any positions that did not materially participate in the growth stock rebound and add to or begin positions in stocks that did. For example, Cloudflare (NET), a stock that rose nearly 6-fold last year only to get pounded this year, doubled from recent lows. Meanwhile Enphase Energy (ENPH) rose to new all-time highs nearly every day. We added to or held onto those positions in our Growth portfolio. IAC/Interactive (IAC) a stock that has fared well for us for a few years, struggled in the recent growth market rebound and I decided to ring up the remaining profits we had in IAC (our position was a fraction of what it was at the stock’s peak). Remember, you are married to your spouse not to a stock.

The debate over whether we are in a recession or not, seems pedantic and a waste of time. By some measures we are in a recession; by others we are not. I prefer to apply the Justice Potter Stewart definition of pornography in the Jacobellis v. Ohio case “…I know it when I see it...” to recessions. I will know we are in a recession when I see it. I just don’t see it right now. I see some evidence of a recession, but I also see some evidence to the contrary. For example, the Las Vegas airport had it busiest month ever in June, surpassing the old record in June 2019. I would not expect such travel to a gambling, entertainment, and epicurean destination in the middle of a recession. On the other hand, the housing market is showing signs of being in a recession. My belief remains the same as I have expounded in My Gut Feeling this year. We will experience recessions in some regions and some industries but not on a coast to coast and north to south border and all industries. Furthermore, those recession will be rolling in nature.

Inflation remains the plague that we will have to endure for the coming year, at least. With inflation running y-o-y at 8% (not 0% as the Biden Administration telegraphed last week) there is only so much inflation the economy can absorb before falling into an undeniable recession. I do not believe that the law passed last week, titled The Inflation Reduction Act, is going to reduce inflation. Rather, it runs the risk of creating further inflation.

We are now in that two-week period before Labor Day when most of the head traders, lead portfolio managers and top salespeople are on the golf course, at the beach, on their boats or on vacation with their families. During this period, the flow of economic and earnings data is imperceptible. So, unless there is a major exogenous event like the invasion of Kuwait and subsequent war, the next two weeks will be quiet for the financial markets. So, expect some profit taking of recent gains so that portfolio managers will have some dry powder to invest come the last month of the quarter.

 

 

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Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long AAPL, AMZN, ENPH, GOOGL, KMB, MCD, MSFT, NET, QQQ, TQQQ, SPY, SSO and SPXL-  although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high net worth private wealth management. LVAM is affiliated with Kingswood Wealth Advisors Services, a registered investment advisor. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right-hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ

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