Time to Reassess and Rebalance

Well, thanks a lot Hurricane Elsa. Yesterday, we had a slight tease as the storm passed us. Just five solid hours of light rain as the storm moved up the coast. But then, at night, when it hit land hours north of us, a wave of thunder and lightning hit Southwestern Florida. It’s been a long eight hours. The dogs did not care for that. And the older one spent the entire night running around barking at the sky. I can’t blame her. I get that same sensation to scream every time Jerome Powell speaks from his podium on monetary policy. It’s a good time to reassess and rebalance.

Market Conditions

Several key things stand out in today’s market that has me concerned. First, as you saw last week, the S&P 500 run has been out of hand. And the SPXL (NYSE:SPXL) – a triple-bullish ETF on the return of the SPY moved into nosebleed territories across multiple momentum indicators.

Next, we have Insider Selling accelerating among executives at companies around the U.S. The Insider Buying to Selling monthly ratio hit 0.32 on July 1. That means for every one buyer of corporate stock, there are three sellers. I often say, who knows more about the balance sheet of their companies than the insiders? Well, the insiders have not been buying much this year. But the market just keeps going up.

There comes a time when the markets just decide that too much is too much. There comes a day when buyers state that they won’t pay a penny more for overpriced assets. And we know that the market is overvalued. The S&P 500 P-E ratio is at its highest level compared to its historical mean since the dot-com bubble. And we have plenty of other issues in the bond market.

Reassess and Rebalance

I don’t like being pessimistic. I find it time-consuming and dull, to be honest. So, discovering opportunities requires a reassessment in these markets. The natural place to start looking is in the small-cap market – within the basket of recently rebalanced stocks that are part of the Russell 3000 ETF.

But there is also significant opportunity in the F&Z Score stocks with solid fundamentals and great balance sheets. It feels like it is time to start playing defense.

After a structural breakout for the markets over the last few years, we haven’t experienced a significant selloff since October 2020. And with so many risk factors reentering the conversation (China’s regulatory crackdown, Russia’s dollar dump, and OPEC tension), it’s an excellent time to reassess and rebalance.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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