Too late to sell, too early to buy …

Brokers and advisers across the country are currently receiving phone calls from their clients: “I need to sell some stock

Why? To feel good about this market / economy / Fed / whatever.

Year-to-date, the SPX fell 22.9%, the Russell 2000 fell 23.1%, and the Nasdaq fell 31.8%. The most damage has been done in the name of speculation. It’s that fun part of the cycle and one of the most challenging.

Problem: We are in the “twin” part of the market.

If you are an active trader who wants to manage your risk exposure, it is probably too late to become a broad seller of stocks. Especially if you take yourself to the wild of meme / wfh / fanmg equities. And if you are a long-term investor, how much more do you believe we will fall? Enough to meet the tax hits that you as a seller here after the huge run up in 2020-21?

Being a salesperson here means you believe in 3 things:

1. S&P will drop another 25-30% from here (-23%);

2. Your capital gains tax will be significantly lower than the rest of the fall;

3. You will be able to get back in and around the bottom.

I doubt that the average investor can do any of the above, much less than three.

In the case of bonds, if you shorten your period at the beginning of the year, you could not avoid the drawdown, it is a little less painful; TIPs and munis are doing much better than corporate and long-standing treasuries. (We own them all). But for the first time since 1981, with bonds down to equity, there was little room to hide.

I have very few opinions about commodities, cryptocurrencies and currencies – they trade differently from the asset class that has intrinsic value.

The “twin market” is where some people change their minds. It’s been almost 6 months, so investors are acknowledging that this is not a small BTFD pullback. The cavalry that came to the rescue in March 2020 stopped their spurs. In their place, the somewhat panicked Federal Reserve is slowly abandoning its belief that inflation is transient, the irony is that it is even close to its peak.

Instead of horseback riding to save the day, a group of people wearing white coats are calming the patient – and possibly euthanizing -. Will Whitecoat raise rates high enough to reduce demand and keep inflation in check? Will the patient survive, or will it be an anti-inflationary compassionate killing?

75 bps looks like a “star light”.

Regardless, we are here. Opponents within me are starting to get that itch to buy here, but it’s not the whole throat “Whole Gotta Get More.” Instead, my inner rationalist is skeptical, and it probably feels too early.

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