With the markets closed in the US for Thanksgiving, and closing early at 1pm Eastern on Friday, it will likely be a pretty quiet week of trading. It typically is.
Our model flipped last week, and you likely saw us getting more conservative. What does that mean to your portfolio? It means reducing exposure to higher volatility stocks (e.g., tech stocks, small and mid-cap stocks) and increasing exposure to equities like health care and consumer staples (e.g., toothpaste, foodstuffs, etc.). Things that tend to hold up better when markets struggle as a whole.
It also means we’re carrying a bit more cash for the time being.
Why the cash, you ask? Good question.
We could use those funds to add positions like gold and bonds but it’s a little up in the air right now as far as those assets are concerned. Let’s take a look.
The above chart shows price performance of AGG, the generally accepted benchmark for bonds. This index has made up in large part by US Treasuries, and you can see that the market has been a little soft lately. Will it move back up? Not if we get a ‘no landing’ scenario. But if we get a soft landing, I think it probably will.
The chart above is largely US corporate bonds. You can see that it has acted much like the Treasury market shown earlier.
While today it is showing signs that it may rebound, I think it’s likely because of the newly nominated Treasury Secretary, Scott Bessent. If he is able to do what he wants, the markets may like it. What does he want?
If he can do these things, and keep productivity up, I think that will be a winner for inflation. If not, you will likely see inflation come back, which would be a drag on bonds.
Gold is another potential, but if Bessent is able to keep inflation down, you will likely see Gold stay down too. Here’s a chart to look at (ticker: GLD).
There is a chance that this heads back to the $215-$225 range that we saw earlier this year.
Finally, Warren Buffett has the most cash he’s ever had. Now, part of that is the growing size of his portfolio, but he does have a large percentage of his total market cap as a percentage in cash. His total market cap is $1.03 trillion, while his cash pile has grown to $325 Million. Roughly 31% of his holdings are in cash and cash equivalents. What does that mean? Depends on who you read.
He has been saying for a long time that he doesn’t find value in the market, though we have to always remember that he needs very big transactions to move the needle. Early on, his cash hoard was around $100 billion. Lately you can see what it’s done.
It broke out this year and headed to all-time highs. We will see where that ends up. Our model and Warren Buffett may be on the same page at this point.
I hope you have a great Thanksgiving. Keep it fun and enjoy your time with loved ones. If you have any questions, please reach out and we will be happy to have a conversation.