Market Notebook

by | Sep 25, 2022

Discussion – 

Equity prices, as measured by ticker SPY, and bond prices, as measured by ticker BND, closed lower on the week.

Equity price action was weak yet again, closing towards the bottom of the consolidation range established around June 17th. Equity prices have yet to give a good test of the consolidation lows.

Bond prices have retested the June 14th lows and closed well below. Bond prices appear to be in a now well-established downward trend.

Market participant sentiment was abysmal during the last week. Continued hawkish comments from the Federal Reserve worked to tamp down any thoughts of a rally in sentiment. Market participants clearly believe that the Federal Reserve is quite willing to risk recession to reign in inflationary pressures.

Regarding the real economy, the status quo continues. Significant inflationary pressures remain in the real economy, and the Federal Reserve continues to act to reign in those pressures. A “data-driven” Fed is a “slowly acting” Fed; thus, any pivot is likely months away.

Given the technical analysis picture, it seems prudent to avoid equity or bond purchases until downward price momentum slows.

So what about selling? The purchasing landscape is often discussed, but the sales landscape is almost never discussed. Why?

For long-term investors, purchases are more frequent than sales. Money often comes into investment portfolios regularly with the intent to remain invested for a long time. Sales are typically less frequent.

The most common reason for the sale of portfolio instruments is rebalancing. Rebalancing can be considered the sale of asset classes that have gone up in value and the purchase of asset classes that have gone down in value to maintain the desired “balance” of assets in the overall portfolio. This activity is typically systematic, and therefore comments are moot. Even so, from time to time within the Market Notebook, one will see a note to “consider rebalancing.” Such notes tend to be included when significant price changes occur or are expected to occur.

Another common reason for the sale of portfolio instruments has nothing to do with what is happening in the markets. Instruments are sold to generate liquidity or cash for the portfolio holder, usually in response to planned needs.

Occasionally,  instruments are sold if valuations appear high, the sale is needed to affect the purchase of a different instrument with an attractive anticipated return opportunity, or an anticipated opportunity did not materialize. In long-term investment portfolios, these sales tend to be infrequent and tend to be specific to the portfolio or to the instrument.

To summarize, purchasing opportunities can often be generally described, whereas sales tend to be very portfolio or instrument specific. The above is why sales of equities and bonds are discussed less frequently within the Market Notebook narrative. Of course, it is always suggested that one consult with one’s investment professional before executing any trades.

All the best during the week ahead!

Disclaimer: Nothing in this discussion should be considered investment advice. The content of this discussion is strictly my personal opinion and subject to change at a moment’s notice. Investment advice can only be provided to you by your investment professional and not by a general market discussion such as this one. If you wish to speak with an investment advisor, contact us. We can probably help.