The markets peaked late last year and have been declining ever since. Why? If you’ve ever watched CNBC or listen to any macro financial advice, you have heard this mantra. Don’t Fight the Fed! What does it mean? If you have the time, here is a link to the long version:
What Does “Don’t Fight the Fed” Mean? (thebalance.com)
If you already know what it means or you want the short version, here it is: the Fed is currently raising rates to levels not seen in over 10 years and doing so at a pace we haven’t ever seen (i.e., we have never seen rates raised significantly from 0, so the rate of change is quite drastic). To dumb it down, when rates go up, stocks go down. And they will continue to go down until we all agree that the Fed is at least done and, preferably, planning to start lowering rates.
Many people mistakenly thought the Fed would soon be changing tactics. I’m really not sure how so many people got that idea as no Fed official gave so much as a hint of such a pivot. Chairman Powell did his best to disabuse optimists of their Pivot Narrative a week or so back. My favorite excerpt:
“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.”
Read the whole speech here: Speech by Chair Powell on monetary policy and price stability – Federal Reserve Board
So where does this leave us? Contrary to popular Financial Advice, I recommend you stay away from stocks until the dust has cleared. Sure, you can try to pick and choose sectors and companies, you might try your hand at commodities or even FX, and you might have some success. However, there are periods where almost everything goes down. There is no reason we can’t take advantage of that.
I recommend:
- Sell most / all of your technology holdings (as I mentioned before, I really recommend you sell all long positions, but if you just can’t bring yourself to do so, at least do something)
- Depending on your risk tolerance, buy as follows:
| High-Risk Investors | Buy PSQ (Short QQQ ETF) |
| Higher Risk | Buy QID (Short x2 QQQ ETF) |
| Highest Risk | Buy SQQQ (Short x3 QQQ ETF) |
Regardless, if you do choose to go short (i.e., buy the ETFs), we will hold based on Volatility until the VIX hits at least 30, preferably 35. Full disclosure, I am very long SQQQ, including short puts and long calls in addition to some other short strategies. I will start offloading my position at VIX=30 and if it gets to 40 I will be out of it.