Hey friends - soak up these last few weekends of summer.

🌎 The Big Picture

It was a pretty light week this week. There were plenty of discussions about what the movements in the market this week meant for the broader economy or stock market, but you need to take late August stock movements with a grain of salt. The market seems like a big machine, but there are still a lot of people making decisions, and right now, most of those people are not at their desks. With fewer traders, markets can either be painfully boring or extremely volatile. So there might be a scare next week, but it would be something that could easily be reversed after Labor Day. The moves this week could have been a few funds taking profits.

Several people have asked me whether it’s a good time to sell stocks. If it has run up this much, should I take my money and run?

This question has many different answers.

1) Regardless of what’s happening right now, you should never have any money in the stock market that you might need within the next 3 years. It’s too volatile. If my clients ever said anything like I need cash for this expense or to support my income - sold immediately.

2) Money you don’t need for 10+ years shouldn’t be touched based on market conditions. When you hear Wall Street professionals talk about selling this or that, the clarification that’s rarely tagged to those statements is that they usually just mean they’re reducing their allocation to a particular stock, sector, region, or asset class by some percentage. Long-term portfolio managers are making 1-3% shifts. They’re never selling all or even most of their stocks. And it would be pretty easy to argue that those moves are more for show, because they’re paid to “manage,” not because it actually generates better outcomes. So, if they’re not managing, will you keep paying?

But, if you’re feeling like you have too much profit you don’t want to lose, and think the market is due for a selloff, you could look at dialing back your risk a little. Risk looks like concentration (a lot of money in a single stock/sector/asset) or volatility (stocks/assets/sectors that swing in price more than average). So, sometimes in moments like these, I’ll trim the size of some of my stocks that have had massive runs that seem like they don’t make sense right now and rotate some of that back into a diversified index fund of the S&P 500. That way, if the market falls, the money in the diversified fund drops less than the volatile stocks, and I save a little bit. When I feel like things have sold off too much, I reverse back. I’m a pretty lucky investor and am very tuned into the market every day, so I’ve done well with that, but I don’t always get it right.

3) For the money that you might need in 5-10 years, it’s a tough choice and very personal. Feel free to send me a question.

4) If you’re looking for my view on the market in the short term, just because you like gambling a bit, I think the most likely direction from here is down.

I think people are underappreciating the impact of tariffs. Most only just went into place, and adding hundreds of billions in new taxes will strain someone (businesses or consumers), and increasing the price of everything we import by 10-50% will create inflation. Housing and gas disinflation may offset it on paper, but not in real life. And most other trends for the earth right now are long term inflationary by default. Deportation efforts are also already straining businesses.

Corporate profits (earnings) drive the stock market over the long term, and how confident investors are in those profits actually happening (P/E multiples) drives stock prices in the near term. From a numbers perspective, people are already projecting even stronger profit growth for next year than this year (see my doubts above), and the confidence level in those profits is at 2021 post-pandemic meme-stock NFT period highs.

So, can this optimism continue? Absolutely. Can I name a million things that could rattle that confidence and send markets lower this year? You betcha.

But that’s what keeps it interesting.

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🏭 The Companies Everyone’s Talking About

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❔ The Big Question of the Week

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