Marc Cuniberti: To nibble or to gorge
Seems like most of my latest articles have been about inflation, the Federal Reserve (the FED) and their interest rate increases, and the crazy action in the stock markets.
Yes, there is more to economic news than those three topics, but the markets crazy action is the result of the first two topics I mentioned: inflation and the FED.
With the recent four week rally in the markets now in the books, investors are wondering if it’s finally time to relax, take a deep breath and push the buy button.
Throughout the duration of the brutal hammering of the markets in the last nine months or so, I oscillated between remain calm, sell some stocks on the way down, and most recently, suggesting that if the FOMO (Fear of Missing Out) bug bites you , nibble, instead of gorge, on a meal of solid dividend paying iconic companies and beaten up but financially strong technology stocks. These technology names exist mostly in the NASDAQ market. Some of these tech giants are off as much as 90%.
I use the word nibble instead of gorge with the thinking being, yes, they could get cheaper, but a year from now one might look back and say “why didn’t I at least buy some these when they were all beaten to hell?”
True, many of these stocks have rebounded many percentage points from their lows, but if one glances at a stock chart of many of these hammered companies, the recent rally is barely noticeable.
In other words, although many of these stocks have risen 10, 20 or 30%, to think one has missed the turn would be shortsighted. What you may only have missed out on is a bunch of head fake rallies and frustration.
Loading the boat with stocks now because of the recent rally is to believe all is well and will continue to be well in the markets and our economy.
The truth of the matter is, although the latest inflation figures hint at a reduction in inflation, we may be only at the end of the beginning (Winston Churchill — 1942).
Statistics are always backwards looking, so it in this analyst’s opinion we are seeing the last of the wild consumer spending brought on by the lucrative government handouts of the last 24 months, which was the start of the COVID rescue packages.
This recent earnings reports, although bleak for some companies, were moderately OK for others.
This recent “OK” news may have encouraged some stock buyers to step forward. Additionally, last week’s drop in inflation data has also bolstered investor enthusiasm.
Since the FEDS have only started to increase interest rates, and have yet to begin Quantitative Tightening (QT), which is removing money from the economic system, the real effects of FED policy is likely only at the beginning of the beginning.
Although the latest earning reports may have shown only a moderate drop in revenue for some, the next earnings season may better illustrate as to how much rope the consumer has left before he starts to feel the inflation noose tightening around his monetary neck.
As it relates to nibbling on stocks instead of gorging, should the next earnings reports, which start around November, show a continued erosion in spending by consumers, the stock market could start down as economic reality bites down hard once again on Wall Street.
If you load up on stocks now based on the recent rally, you could be setting yourself up for more pain.
Best to instead nibble on a handful of profitable companies that make real products and didn’t get too badly hammered during the last earnings reports. That way if the market continues to run, you will participate, which will help to eliminate that nagging FOMO feeling. And if the market indeed takes another header in the fall, you’ll still have plenty of cash to buy stocks at even lower prices.
“Watching the markets so you don’t have to”
This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, SDSU, and California Insurance License #0L34249. His website is moneymanagementradio.com, and was recently voted Best Financial Advisor in Nevada County. 530-559-1214
A few weeks back I detailed the rising rates on U.S. guaranteed debt instruments and how investors might take another trip down to their local bank and ask about current CD and savings rates. With…
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