We aren’t talking about the reiteration of a decade-long Nouriel “Dr. Doom” Roubini type call for a stock market crash due to the always easy excessive valuation and bloated government debt arguments (the S&P 500 is up 506% since March 1, 2009). Instead, we are referencing stock market correction calls of at least 10% by some of the brightest minds on Wall Street, whose work I really respect.
“You should always be expecting a 10% correction. If you’re investing in equities, you should be prepared for that at any time,” Morgan Stanley’s Chief Investment Officer Mike Wilson told Yahoo Finance Live. “The bottom line for us… is the risk reward is not particularly great at the index level from here, no matter what the outcome is. That’s why we don’t have any upside to the S&P for the rest of the year.”
The question investors need to be asking is straightforward. Should you give a hoot about these calls from top Wall Street minds? I fancy the answer is yes, for a few reasons.
For one, peek under the hood of the market and you will see evidence of a rolling correction (as Wilson likes to refer to it as) that could soon bubble up to the headline-grabbing major indices. About 90% of Russell 2000 stocks have already fallen into a correction, as Bloomberg notes. Morgan Stanley’s work reveals that the average stock in the S&P 500 is down 10% from its 52-week high. Outflows from cyclical stocks since June 15 have tallied $15 billion, according to a recent Jefferies note.
These are indications of shifting sentiment in markets, and it’s shifting with good reason.
So in other words, the fundamentals that have underpinned the market’s rally up until September have changed for the worse. Don’t let the hardcore bulls tell you otherwise, the proof is in the pudding (large companies’ warnings).
Meanwhile, all of this unfolds just as super accommodative Federal Reserve policy — a big driver of the stock rally during the pandemic — is poised to abate by year-end. Wilson told me investors need to be cautious on FAANG (Facebook, Apple, Amazon, Netflix, Google) stocks ahead of Fed tapering, which sure makes a lot of sense since these stocks go down with the broader market, given their size and importance.
All of this isn’t to say you move to all cash and bitcoin and take refuge in a backyard underground bunker. But it may be time to take some profits on winning positions and wait for more opportune entry points. There is nothing wrong with banking winnings.
According to recent trading updates, Ark Invest’s Wood has been selling shares of Tesla in her Ark Innovation, Ark Next Generation Internet and Ark Autonomous Tech & Robotics ETFs. The 180,000 shares sold by Wood amount to $139 million, per Bloomberg. Tesla’s stock is up 21% in the past three months, hence it’s not a shock to see Wood selling a bit of her most high-profile position. Wood recently told Yahoo Finance Live that she sees fair value for Tesla at $3,000 a share (Tesla shares are currently trading at $736), so I wouldn’t expect her to completely exit the name that put her on the map anytime soon (if at all). Wood continues to view Tesla as years ahead of others in the globally expanding EV market.
So don’t call me a fear monger on Twitter, I’m not trying to sell you anything here.
Here’s one company I am watching this week:
Chevron: With ESG-focused activist investor Engine No. 1 reportedly kicking the tires on Chevron (CVX) after scoring a major win against the fat cats at Exxon earlier this year, Chevron executives will look to keep their cushy gigs by holding an environment-centric presentation on Tuesday. The event titled “Energy Transition Spotlight,” will outline how Chevron “will plan to lower carbon intensity in our operations and grow lower carbon businesses.”
2:00 p.m. ET: Monthly budget statement, August (-$175.0 billion expected, -$200.00 billion during prior month)
Congressional Democrats will formally unveil their tax plan as soon as today and a draft has already leaked. The proposal is estimated to raise $2.9 trillion in new taxes from wealthy Americans and corporations and will be discussed in committee hearings today.
President Biden is headed West today for a two-day trip that will take him to Idaho, California, and Colorado. He’ll be focused on wildfires with a stop at the National Interagency Fire Center as well as politics with a campaign stop for California Gov. Gavin Newsom ahead of the recall election tomorrow.