The stock market faces some hurdles ahead as investors await the outcome of the U.S. debt ceiling debate, the Federal Reserve’s timing decision on tapering, the infrastructure bill and the Stock Buyback Accountability Act.
Several other factors loom large and there are many signs that the economy is headed for a slowdown as the impact of the Delta variant remains wide reaching, wrote Stephen “Sarge” Guilfoyle in a recent Real Money column.
“The economy is slowing,” he wrote. “The big banks, though extremely (I mean... holy moly, wake the heck up) late in coming to this understanding, have indeed finally arrived. The Delta variant, though seeming off of peak rates (hopefully) of infection is still deterring enough normal behavior as to slow commerce, constrict supply chains, and subdue labor market participation... either through fear or lack of suitable options for child care.”
Investors need to be prepared for a choppy market, but going to cash and timing a re-entry into the market is challenging. Putting up with the increase in volatility is one strategy, Guilfoyle wrote.
“My point is that the investor who stays the course throughout will likely suffer some seasonal anguish, would probably be outperformed by the trader who turns assets into cash in mid-September intent on re-establishing most of those positions with marvelous precision in timing at some point prior to November,” he says. “While true, I know that I am likely not sharp enough in my timing to be that trader, and I am quite confident in my standing among that broad group of individuals.”
The stock market is nowhere near being technically oversold at this time, but investors face a greater amount of risk since there is not only seasonal risk, but also headline policy risk during the next two weeks.
Guilfoyle’s stance is to remain in the market. His strategy is “maintaining not gargantuan, but elevated cash levels. Not going crazy.”
Whether or not the market will “get ugly” in the short-term, he does not plan to “be a leader to the upside if the trade-off is that I have protected myself from leading to the down-side,” he wrote. “In other words, keep your helmet on, and buckle your chin straps.”