[Below is an open letter I wrote to our client’s this week in order to explain the selloff in stocks. A big thanks to Tom McClellan for his insights on the VIX. I also included my recent interviews.]
We are fine, I'm not joking. If you want to know the technical minutia, I have prepared CIO notes clients can access through the client portal under “updates” or our smartphone app under “commentary.” Or just email me directly and I will send you my notes. However, none of that will tell you anything about the long-term direction of the market, how today effects your financial plan, or our playbook for 2018. Let’s talk about what really matters, not the noise.
Here is the playbook: Monday we did some rebalancing. Just realigning the portfolios after a big run-up over the past year. Remember that today wiped out ONLY the last 4 weeks of gains. Hardly compelling. If I said today you can buy at a price level not seen since a month ago, I’m uncertain you would be throwing money at me to invest or telling me the end was near. Markets wobble – but I get it – it’s been almost 2 years since markets have exhibited a more normal level of volatility. Even I was excited to see the close today. Yesterday morning I was lamenting to clients that it’s been boring, and I can’t wait for some volatility. From my lips to the markets ears, right?
What are the next moves? We want to see if the S&P 500 can get down to around 2500 (I’m looking at 2480, but you just round the numbers so program traders don’t front-run the same chart everyone is looking at). If it does, and nothing material has changed, we will most likely purchase stocks from weak investors or short-term speculators and move forward. We are not yet in an environment where recession is around the corner – give that a year. But if we end the selloff now – at least we tweaked the portfolios and got them cleaned up at the right time.
Below are a few interviews. They provide some sound bites that could help frame the current situation and give you an idea of what I was thinking that day. If you feel panicked and want to talk, call me. Sometimes just saying “this makes me feel worried” is enough to let you move on with your day. Always know that we are dedicated to your success and confident in our abilities to navigate markets.
Some fun background on this clip: I’m on vacation in San Francisco (thus the crazy hair) when the awesome producer for Fox Business’s Making Money with Charles Payne calls and asks me to share my own state of the union on markets right before Trumps big speech. Well, yeah! It was the night of the State of the Union. Of course, I wanted to chime in. Problem was, I had no suit or tie or anything. I was in the city for to see Peter Murphy perform his album Deep (concert was canceled due to some visa issues - not surprised a 60-year-old rock star from the UK with drug charges couldn’t get into the county). So, I ran off to the Alexander McQueen boutique and found this incredible blue jacket and ran next door to Paul Smith (all on Geary Street by Union Square) to pick up the shirt. Yes, my first TV appearance without a tie! So, there I was, in San Francisco with my new threads talking about my favorite subject: markets. What could top off a better trip. My comments were simple, profits are good, taxes are low, looking for some pullbacks to invest more cash. Until I see an inverted yield curve don’t fight the market.
Charles Payne was out this day - so I took a chance with John Layfield. We got right down to business. You buy the dips and get aggressive absent an inverted yield curve and continued strong profits. When 80% of companies that reported earnings hit their mark, you don’t look a gift horse in the mouth. My second big point was simple: people shouldn’t be so surprised growth is happening.
And for what it’s worth – here was the VIX chart today – okay, I made it look scary, but that is what it takes to get the market to sell off 4%.