Buy on Rumor, Sell on News
Welcome to September and Happy Labor Day! I received a few emails over the weekend and today about my posting timelines. When the end of the month falls on a weekend, I typically delay posting my newsletter and allocations until Sunday night.. This allows additional news cycles (the world is an ever changing place) for me to consider my moves. When the following Monday is a bank holiday, like today, I wait until Monday evening. I honor all subscriptions that end in the first few days to make sure expiring subscriptions get all my details.
So, as you might have noticed, I'm making a very drastic change in my allocations this month. I'm moving everything to the Bond Funds for September. I have not done this since March of 2021, which were deviations from my technical analysis because of the extreme circumstances at the time. The last pivot to the Bond Funds based solely on technical details was July 2016. This time around, much of my technical data says to remain with the following allocations:
However, I'm not confident that is the right move, for September at least.
Several reasons:
- The election. If you notice above, the previous moves to the Bond Funds came during the 2016 election and just after the 2020 election and during the COVID crisis. We have seen so many Black Swan events with this election, that I just don't feel comfortable in the S&P 500 Fund this month (probably for October too). The stock market abhors uncertainty and everywhere I look, I see uncertainty.
- Jobless claims. New jobs added were revised downward by over 800,000 jobs in the last year. In short, the economy is not as strong as we are being led to believe. Polling for the election also shows the economy is the number one issue for voters. If the economy were strong, this would be lower down on the list. This is obviously tied closely to inflation. Of note, inflation is returning to pre-COVID levels, but unfortunately for the consumer, the new price levels are a significant increase from 2020. Everything in the grocery store is at least a $1 more. Multiply that by 100 items and you can tangibly see the impacts and why the "Economy" is the main issue.
- Jackson Hole. The Federal Reserve's annual economic symposium at Jackson Hole, Wyoming revealed several insights into where our economy is likely headed and what the Federal Reserve intends to do in the coming months. They very strongly indicated an interest rate cut. As the title of my post reveals, one buys on rumor and sells on news. This is still just a rumor until they do it and so we have a pop toward the end of August. I expect a drop when they actually do cut rates. The fact they are cutting rates indicates they are happy with the inflation target, but they also indicated a policy change where they were shifting away from tackling inflation and towards maximum employment. This and the revision above leads me to believe they see a downturn in the works. If they catch it fast enough, great, but I'm not so sure they have. Of note, a reduction in interest rates will help the Bond Funds, even if there is a sell-off in the S&P 500 Funds as bond prices are the inverse of interest rates.
Many of you have wondered how you can invest in the funds I'm investing in when your plan does not include those mutual funds. A useful tool to compare funds can be found at https://portfolioslab.com/tools/stock-comparison. This can be especially useful when you don't want to incur a purchase fee for VBLAX (which is 0.50%) if you have another Bond Fund available to you.
We have seen a 19 - 20% returns this year, and if I lock that in, I'll be very happy. However, based on the above, my assessment for September is not as positive. Keep investing!
