Stocks Should Not Be Going Up!

But they are. For the last eight sessions anyway.

In a recent post, I asked if it was over making it crystal clear that I had no idea and I still have no idea. There is always a working list of pros and cons to weigh out in trying to assess risk. No matter how bad things may appear there are always at least a few positives. Sometimes though, markets go up for no reason at all. 

Microsoft did a lot of the heavy lifting on Thursday as I think this table captures. SPXT is the S&P 500 excluding technology. The Invesco S&P 500 Equal Weight ETF (RSP) was down 14 basis points today. 

I had a quick phone call with one of the higher ups at my firm today and he asked if I had any opinion about what was going to happen with all the current drama underway. He probably didn't love my answer but I told him that I don't know and that I happy being less volatile than the market and felt fortunate that the expectation I had set (being less volatile) was playing out as intended. 

My hunch is that this is nowhere close to being over but client outcomes are not relying on that hunch being correct. Mark Mobius made the rounds on Bloomberg earlier in the week for sharing that his fund is 95% in cash. Figuring out when to get back in from that sort of cash position will be very difficult to get right especially if there is no sort of woosh down. Down 30% from the high would bail out someone sitting on 95% cash, that would be buying low even if it goes lower. 

If from here, the market rocketed higher, then what does he do? What if it jumped 10%, he got back in and then it fell 30% and then traded sideways? There is no reason for any of us to try to thread that sort of needle.

The chart is the S&P 500 going back 40 years. Other than having the proper asset allocation and addressing sequence of return risk when relevant, I would not want to get too aggressive, like selling 95% of my stocks, trying to fight that inertia.

BTAL and SH make up just mid-single digits of the portfolio. Gold and CBOE which have chipped in with defensive attributes also combine to mid-single digits but CBOE clearly has equity beta and managed futures, also a small weighting, simply isn't helping during this event. Yes I sold one stock six months ago, Nike, but my typical approach is to try to avoid selling a lot of stock as opposed to trying to offset the declines with holdings that should go up. BTAL, SH and the others should go up but they may not always work (SH as an exception). Managed futures has done fantastically well in previous events but clearly not this one. 

To the extent you even believe in any of this, a little goes a long way. If you don't believe in any sort of volatility management, the 31000% gain in the above chart supports your belief. 

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