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Last week I suggested that the Fed could cut rates this month, potentially in a quick, emergency meeting.
And it’s not too late to do so. A 0.25% cut will not panic the market if it’s properly prepared. It’s only Aug. 4. The Fed’s favorite gauge, the PCE for July, is published Aug. 30. That’s already so far out that they might as well wait for September. CPI for July is Aug. 14, and that could still work. The Jackson Hole Federal Reserve gathering is from Aug. 22 to 23. So we could get the CPI and if it continues to show a moderating inflation picture, they could start hinting about what could be next at that event. Powell could then have an opportunity to assuage the markets that there’s no emergency, but that a small cut now gives them more optionality. If you’re curious about what I wrote last week regarding better optionality, again here’s the link.
Looking back to see ahead
It’s about 5 p.m. as I begin to analyze the past week and perhaps try to see what will happen this week. We finally had that correction in the Nasdaq, and about 6% if you use the closing low for Friday, if you take the intraday low we hit 6.5%, this puts us in the “normal” range of a typical sell-off. Putting that in a historical context, and a range of 5% to 7% could easily happen two or three times a year. We have been fortunate to have this run of ultra-low volatility, but now it could be over. This is the “Old Normal,” even if the Fed does start cutting rates this month we are never going back to zero, and the Fed Funds Rate, the actual rate the Fed sets, is not likely to fall more than 100 BPs to 150 BPs over the next 12 to 18 months. The Fed is likely going to cut very slowly unless unemployment really craters. I don’t see that unemployment is going to 5%, but even if it does, there was a time not too long ago when 6% was the maximum rate of employment that wouldn’t cause a sharp rise in wages. I, of course, like every American, want us to continue to have the current level of 4.3% for all of eternity, if we could. Right now, keeping rates as high as possible without affecting employment levels is important because the inflation potential is much higher than it was only a few years ago. A 0.25% rate cut could be explained as taking that last raise back. If you look back at what occurred, we had a few Fed meetings where there were no rate raises, and then we had that last raise. The Fed can say we will wait for more data to decide whether we cut in September. If they cut, they only need to cut 0.25% and that won’t panic the market.
One last word about rates
The stock market is not the market the Fed truly cares about the most. The market the Fed watches closely is the debt market. We have seen the 2-Y and 10-Y in what I feel safe to describe as a crash in rates. When we sell US bonds, it affects the corporate bond market. Say there are a bunch of mid-sized companies coming into the bond market and based upon the current US bond rates, the corporate bonds come to market and no one bids. This could have huge ramifications if there’s a snag in the credit market. So the Fed needs to be very careful here. It might be counterintuitive to cut rates on the FFR, and that would support the market. Interest rates are falling for two reasons. The first is that a cut is expected soon, and the second is there’s fear that the slowing we are seeing will turn into a recession. A quick quarter-point move now will assure the market that the Federal Reserve is on the case and not dithering. That should prevent any kinks in the credit market from forming.
Buffet does the unthinkable and cuts Apple (AAPL) holding in half
Someone asked me what Berkshire Hathaway (BRK.A) (BRK.B) would do with all that cash, and I said they could potentially buy Boeing (BA). They could do it (though it’s speculative): BA is only $100B, they could double it as an offer paying all cash, and I bet holders would grab it. I said this half seriously, or less than half (again, this is speculative), but maybe they have faith in the new CEO, and taking BA private might just be what BA needs right now. They may have to jettison the defense business to concentrate on commercial airliners. They may have to close down the Starliner business, which is another money pit, and bear down on making the best quality, safest jet airliners on the planet. It’s really hard to do that as a public company. That’s my pipe dream. I don’t own BA, or Berkshire Hathaway stock. I’m just sad and frustrated to see BA deteriorate, bouncing from one crisis to another. Maybe Warren Buffett feels the same way. If they can fix BA, BRK.A will make huge dollars for shareholders.
Finally, here are the 6 stocks I’d buy tomorrow
Finally, let’s get to the premise of this article. No matter what reason someone can come up with to say that AAPL is worth what its closing price was this past Friday, Warren Buffett is on the other side of that argument. Warren Buffett has been a huge supporter of Tim Cook and the prospects for AAPL for quite a few years. We don’t know if he’s going to stop at 50%. In the last few years, most of the time when he starts cutting his holding, he tends to sell out the whole pile. Kudos to him and his team that they managed to sell out such a big chunk of AAPL, with the stock for most of that time, near its all-time highs.
What does selling this huge chunk of AAPL mean for us?
AAPL is the most heavily weighted stock in the S&P 500 at just under, and we have a similar arrangement in the Nasdaq-100 with AAPL having a 9.9% weighting. AAPL is found in many ETFs, and other indexes like the Dow Jones Industrial Average, the DJIA. This gives AAPL a huge influence on the prices of all stocks but growth stocks in particular. Also, the news that Warren Buffett is selling such an important name on such a large scale could panic the market in general. On top of this is the news that Nvidia (NVDA) is delaying shipment of the Blackwell. Their latest AI chip will also lend itself to the overall selling, especially in tech. I think these two pieces of news will cause some strong selling in tech, and I want to be buying that sale.
Shouldn’t I be talking about selling right now? No.
If you’re a trader, you should have likely sold most of your long positions two weeks ago when the market started getting weaker. At this point, it doesn’t make sense to sell unless you think there will be a recession tomorrow (I don’t believe a recession is coming any time soon). We’re likely at the last jag of selling, at least until the fall. So, I did say that those who have investment allocations to hold off allocating earlier in the year because the fall is when the market underperforms. Fall came early and stocks were on sale. Now is the time to nibble on some growth stocks at a discount to the 52-week high. So I have been saying to my investment group and even a previous article that I saw NVDA falling into the 90s and perhaps the 80s. I’m going to try and scoop up some shares this week and save the rest of my allocation for September and October. We will likely see a nice bounce once we have this climactic sell-off, with traders coming in later and buying NVDA for 100, instead of 80-90 something. I already bought some Amazon (AMZN) shares at 164.93, I will try to get some 10 points lower. Same with Microsoft (MSFT), Meta Platforms (META), and Alphabet (GOOGL). Also, I have been buying CrowdStrike (CRWD) in small increments, some at 258, 254, 239, and 228. It closed at 217 so I will buy some more tomorrow to build a position. I believe that CRWD might break under 200, I have no idea when it will stop, so I will add bit by bit. CRWD is the market leader, and they certainly made a horrible error, and they will lose some market share. That said, they will remain a formidable competitor, once the smoke clears. So far, there’s only one airline – Delta (DAL) – that’s suing. What about other airlines, hospitals, and other important services that we rely on? I think there are only more lawsuits to be announced. This is a one-time thing. It will be cleared up quickly, and then CRWD will start climbing back. I also have been a long-term investor in Sentinel One (S) and I think they will get some more market share.
So that’s what I will be doing. I will start by putting in lowball orders for NVDA, maybe like 96, and then 93, and 87. Sometimes in a panic, when many are looking to just get out, you might scoop some shares at the lowest levels of the day. The other names that I think could fall hard are GOOGL, and maybe MSFT, and I will put in similar bids starting at about 10% below Friday’s close.
I think if you’re selling tomorrow, you’re doing it wrong. If you have been trading on margin and have a margin call and have to sell, you’re really doing it wrong. You will find that margin calls happen just as we’re bottoming. When people are running for the door, they might sell at ridiculously low prices to get through the exit. Margin calls happen from about 2 p.m. to 3 p.m. I will bid in the morning and maybe try again in the afternoon. If the economy is slowing, these tech names will still be growing. These stocks in particular and US growth stocks in general, are the best stocks in the world. The key is to buy them at the right price. These bids are for my investment accounts, not trading. For investment, I add to positions in small increments to average down my cost basis.
Good luck everyone!
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