Daily Brief - Are you timing your stock sales? Should you? (Nov 1, 2021)
Everyone is selling. Or at least they say they are. Cathie Wood’s ARK funds dumped another $100 million in TESLA stock just this past week. Forbes carried a piece about how to prepare for a market correction.
Should you be selling, too?
If you are keeping tabs on what the pundits are saying, you’ll have heard plenty of reasons to sell your stocks this past week. First, there were earnings disappointments from Apple and Amazon.com, among others. But they were actually not that disappointing.
Apple handily outperformed expectations on the services revenue (digital content stores and streaming), a stabler and far more profitable revenue stream than product.
The story with Amazon is similar: Amazon Web Services (AWS), the high-margin cloud computing business that catapulted Andy Yassy into the CEO seat, also surpassed analyst expectations, growing at its fastest pace since Q1 FY 2019.
The GDP report seemed to be a doozy. The economy dropped from a 6%+ pace down to 2%. But most of the drop was because of the well-documented supply chain issues, not because the economy is running out of steam. Consumers couldn’t get their hands on things they wanted: their spending rose at an annual rate of 1.6% in the third quarter, down from a 12% pace in Q2.
You probably heard about the “yield curve flattening”, too. The difference between short-and long-term Treasury yield dropped 0.15 percentage point in a single day last week, a massive move that often signals investor fears that the Federal Reserve would raise interest rates too quickly. It was a global phenomenon with curves flattening elsewhere, from the UK to Australian markets.
For most investors, the time to worry is when the curve is in danger of “inverting.” That’s when short-term rates are higher than long-term rates. Historically, that was often a sign (albeit with a far-from-perfect record) of overly tight monetary conditions, and signalled that a recession may be on its way. We’re nowhere near that yet.
More broadly, while the Fed is still solidly in the easing mode - remember, the discussion currently is revolving about easing less, not tightening - equities are unlikely to enter a bear market. No doubt all eyes will be on the Fed this week as they are expected to announce the details of the tapering.
As Lady Gaga says: “I've got a hundred million reasons to walk away.
But, baby, I just need one good one to stay.”
Easy monetary policy may well be that reason.