I don’t know if Friday’s bounce will continue into the new week. I think the summer season is likely to be positive for revenue at many companies–travel, airlines, Las Vegas–but I don’t like the longer term fundamentals in the economy. Inflation is going to be harder to reduce than Federal Reserve rhetoric and Wall Street sentiment now credit. And there is a good chance of a recession in 2023.
But I’m not looking for some kind of crash from here–at least not before a recession tests the credit markets in 2023. We’re on the edge of a bear–the Standard & Poor’s 500 was down 18.1% from its all time high as of the close on Thursday–or in a bear–for the technology stocks of the NASDAQ. The typical pattern from here is for a continued decline to be punctuated by sharp rallies and bounces (like Friday) until we put in the ultimate bottom (certainly after a few more Federal Reserve interest rate increases.)
We’re not there yet. This downward trend in equity markets is likely to continue for a while in my opinion.
So what am I trying to accomplish with these sells?
First, I’m looking to cut my exposure to stocks in sector that are performing worse than the sector.
That’s the logic behind my first sell of utility AES (AES) out of my Dividend Portfolio. AES has a lot more overseas exposure than the average utility and that is one reason behind the stock’s underperformance in the last month. As of the close on May 13, the stock was down 16.64% in the last month versus a loss of 6.07% for the Utility Select Sector SPDR ETF (XLU).
Second, I’m looking to sell stocks where I’m overweight a sector where the specific stocks look likely to lag on a recovery (based on watching how have performed on upward trends.)
That’s why I’m selling CrowdStrike (CRWD) and Okta (OKTA) out of my Jubak Picks Portfolio. Those stocks are down heavily in the last month–CrowdStrike down 34.84% and Okta down 34.98%. These sells leave me with positions in Palo Alto Systems (PANW), down 21.94% in the last month, and SentinelOne (S), down 37.29% in the led month, in the cyber security sector. Let me be clear, I do think I want to be invested in that sector for the next five years or more. I just don’t think I want quite this much exposure to the most volatility stocks in the sector.
Third, I’m looking to sell stocks where the trend isn’t playing out as quickly as I hoped and where I find the prospect of an economic slowdown daunting.
That’s why I’m selling shares of Generac (GNRC) out of my Jubak Picks Portfolio. The maker of backup power generators indeed a stock that will do well as companies and individuals act to protect themselves from the turmoil of global climate change. But this isn’t a stock that I want to hold on those prospects just yet. The shares are down 15.52% in the last month.
And fourth, I’m not adverse to taking some profits in stocks that have managed to produce upside momentum in this environment but that have significant exposure to any economic slowdown.
That’s why I’m selling Wesco International (WCC) out of my Jubak Picks Portfolio. The stock is up 0.61% in the last month but momentum looks to be under some pressure with the shares down 11.11% in the last week as of the Friday , May 13, close.
More sells–and buys–as the market develops this week.
