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<\/figure>\n\n\n\nJeff Clark
Editor, Market Minute<\/em><\/p>\n\n\n
So\u2026 now what?<\/p>\n\n\n\n
Investors got the Fed Funds rate cut they were looking for on Wednesday. They also got a tepid nod for two more cuts this year.<\/p>\n\n\n\n
The initial reaction was muted. Stocks climbed a bit at first. Then they dropped a bit. By the end of Wednesday\u2019s session, the major market indexes closed just about where they were prior to the rate-cut news.<\/p>\n\n\n\n
We didn\u2019t get a \u201csell on the news\u201d event. And, we also didn\u2019t get a \u201cblow the shorts out\u201d rally \u2013 until yesterday.<\/p>\n\n\n\n
Stocks gapped higher yesterday. The indexes surged to new highs.<\/p>\n\n\n\n
Despite record-high valuations, despite low cash balances in institutional accounts, and despite the calendar being right in the middle of a seasonally bearish period, investors chased the momentum higher.<\/p>\n\n\n\n
As Appaloosa Management\u2019s famed leader, David Tepper, explained on CNBC yesterday morning, you can\u2019t afford to not be in this move. He further explained that, while he wasn\u2019t \u201cthrilled\u201d about buying stocks in this environment, the risk of underperforming was too great.<\/p>\n\n\n\n
Mr. Tepper cited the action in the NASDAQ in 1999 and early 2000 as a similar period in which investors could not afford to miss.<\/p>\n\n\n\n
While I try not to make a habit of arguing with billionaires about financial concerns, my immediate response was, \u201cHuh?\u201d<\/p>\n\n\n\n
Most folks who participated in the dot-com melt-up in 1999 and early 2000 also participated in the melt-down that followed. Folks who bought stocks on the basis of \u201cpage views\u201d and the promise of earnings far into the future \u2013 because they couldn\u2019t afford not to participate – struggled to find the \u201csell\u201d button when stocks first started to rollover.<\/p>\n\n\n\n
That\u2019s not a big problem for someone worth north of $20 billion. For the average \u201cmom and pop\u201d investor, though, it proved to be a far better decision to sell stocks into the dot-com melt-up phase rather than trying to squeeze out the maximum profit possible.<\/p>\n\n\n\n
So, as the calendar rolls over to the seasonally weakest few weeks of the year, stocks are trading at the highest fundamental valuations ever. Institutional investors\u2019 cash balances are at their lowest levels ever. U.S. household allocations to stocks are the highest ever. Margin balances at brokerage firms are higher than ever. And, the best reason a multi-billionaire hedge fund manager can come up with to be fully invested is he can\u2019t risk underperforming.<\/p>\n\n\n\n
I suspect most folks are better off hitting the \u201csell\u201d button right now. Raising cash and selling stocks into strength today, might mean you\u2019re risking underperformance in the short term. But, it will come in handy when the inevitable correction occurs, and you can buy stocks cheaper in the weeks ahead.<\/p>\n\n\n\n
Best regards and good trading,<\/p>\n\n\n\n Jeff Clark<\/figure>\n\n\n\n
Editor, Market Minute<\/em><\/p>\n\n\n