It is very easy to get bearish right now. There are many stories out there about high end jobs getting trimmed, about banks cutting back on credit to the real economy, about the coming bust in Commercial Real Estate. These problems are very real, but that simply doesn’t mean a crash in the S&P 500 is imminent. Certain sectors of the market have been hit hard already, from speculative tech like ARKK invests in and the meme stonks to cyclical and financial stocks.
Russell 2000 looks like a much more muted peak this time
Put to call ratio looks relatively benign compared to recent years (from Ycharts)
On the other hand, the money in the stock market is still rotating more than its coming out, going more towards the big blue chips like AAPL and MSFT than anything else. Here are the top holdings of the S&P 500 tracker SPY:
In Stephanie Pomboy’s recent interview on Hedgeye, she said that she is actually holding a lot less puts than in past years because they just haven’t been working, so she’s sticking more with things like gold miners which should do well at the beginning of the next bull cycle as the Fed cuts rates back towards zero. I’m in a similar boat, also very nervous about holding too many puts, and sticking with longer durations in the puts I have.
I walked through the idea that the key to a real collapse in the S&P 500 is a significant uptick in unemployment a couple of weeks ago here: https://johnonstocks.wordpress.com/2023/04/08/the-stock-market-is-about-flows/
My reasoning was that it effectively worked that way in past recessions, and that most of the money going into the stock markets week after week comes from payrolls with people letting their 401k’s do their thing. Layoffs and fears of layoffs mean that more people stop contributing to 401k’s and more employees decide to move towards the relative safety of bond funds over stock funds. Here’s where the labor market sits:
It looks like continuing claims have bottomed, but they haven’t spiked yet:
The working-age labor force participation rate, though well below its 1999 peak, is still sitting at its pre-pandemic highs:
I admit it still irks me that the recovery from the forced job losses of the pandemic is always referred to as a “red hot” labor market, but that’s beside the point … the labor market simply hasn’t broken yet so neither has the S&P 500 index.
I think what I’ll do is slowly accumulate more long-dated put positions, especially in the stocks where everyone is crowded today like AAPL, but I won’t jam into heavier positions or shorter-dated puts until I get more clarity about an S&P 500 collapse really being imminent.
The truth is that no matter how things seem in the economy, the S&P 500 does not reflect the underlying economy. It moves up and down on cash flows into US blue chip stocks and nothing more. We could hit all time highs again for a number of reasons, or do a long grind sideways like I expored last week here: https://johnonstocks.wordpress.com/2023/04/15/1947-long-grind/
Anyway, here’s where my portfolio weightings ended up. I didn’t do much trading this week – reduced SLVRF a bit and increased UROY a bit. Most of my stocks have covered calls on them where possible, as I don’t expect gold, silver, or uranium miners to moon in late 2023. I’m still on the deflationary side with my 401k in the safe bond fund choice – a 6.5 year duration which pays well now and will give great returns when the Fed cuts later on. At the same time, I really believe that we don’t have enough mining capacity for the next decade and that a lot of money will have to be invested in the sector at some point. I’m willing to wait that out, thinking of the post 2000 period as a proxy for a sector which has long-term bullish fundamentals following a decade of underinvestment.
- HEDGES (5.6%)
- TLT Calls (3.6%)
- LEN Puts (0.7%)
- AAPL Puts (0.8%)
- TSM Puts (0.5%)
- PRECIOUS METALS (40.8%)
- AG w/ cc (6.3%)
- EQX w/ cc (4.9%)
- MTA w/ cc (4.5%)
- SILV w/ cc (4.5%)
- LGDTF (3.2%)
- SLVRF (3.5%)
- SAND w/ cc (2.6%)
- MMNGF (2.8%)
- SSVFF (2.4%)
- BKRRF (1.7%)
- RSNVF (1.6%)
- DSVSF (1.3%)
- HAMRF (1.5%)
- URANIUM (21.7%)
- CCJ w/ cc (3.9%)
- DNN (3.2%)
- DNN calls (1.5%)
- UUUU w/ cc (3.5%)
- UEC w/ cc (2.9%)
- UROY (3.0%)
- LTBR w/ cc (1.8%)
- EU (1.5%)
- BQSSF (0.6%)
- BATTERY METALS (15.7%)
- NOVRF (6.0%)
- SBSW w/ cc (4.8%)
- EMX (3.1%)
- PGEZF (1.9%)
- US CANNABIS (8.8%)
- GTBIF (1.6%)
- VRNOF (1.5%)
- TCNNF (1.2%)
- TRSSF (1.2%)
- CRLBF (1.1%)
- CURLF (1.1%)
- CCHWF (0.6%)
- AYRWF (0.5%)
- OTHER (5.6%)
- DOCN w/ cc (2.1%)
- XRP (3.5%)
- CASH (1.9%)
Market Thoughts - What I’m doing and why 