What Happened in the Market (and the World) This Week?
S&P 500 return this week: 0.81%
S&P 500 return YTD: 2.29%
Nasdaq return this week: -2.06%
Nasdaq return YTD: 0.25%
Wow. I thought last week was bad. This week was even worse. The 10-year treasury continues to spike up and is now in the 1.58%, up 60 basis points from 0.9% at the start of the year. This really shook the market, especially the Nasdaq where the Nasdaq continues its plummet from its mid-February highs. The Nasdaq actually entered correction territory intraday before making a booming comeback.
Earlier in the week, Jerome Powell had the opportunity to calm the markets in an interview with the WSJ but disappointed investors by not mentioning Operation Twist or some version of it. Basically Operation Twist is a monetary policy that the Fed can use to decrease long-term rates and increase short-term yields. The reason investors wanted Jerome Powell to do this is because the market is sensitive to increasing interest rates and that generally happens when inflation seems to be around the corner hence the surging 10-year treasury note yield. Jerome Powell like he always does when faced with what I think is an “easy decision” decided to not placate the markets and the sell-off commenced throughout the week. It continued through Friday because the strong February Jobs report increased the 10-year treasury yield to 1.6%+ temporarily, but fortunately, the market rallied mid-day and had a solid finish.
Quite frankly, I don’t think the market volatility has concluded. I would love for Friday to have been the bottom but with the economy reopening and upcoming $1.9 T stimulus package, I find it difficult to believe inflation fears are going to go away. Granted, as I stated previously, the markets have been fine with high inflation rates historically, so perhaps they’ll get over it. I surely hope so. Hah.
Portfolio Update & Trades
Well, I am now officially down YTD. I’m not exactly certain by how much, but I think it’s around 8-9% since I deposited more money into my account earlier this month. I finished February up 14.4% after being up 23.5% in January, so I think from peak to trough (assuming today is the trough, I wish), I think I’m down near 50%. Yikes. Reminds me of 2018 when I lost 70% from peak to trough after the market crashed from October through December 24 of 2018.
The vast majority of my stocks experienced some significant multiple compression in the past few weeks, especially this week given the surging 10-year t-note.
So what did I do? I definitely panic sold a little bit earlier in the day, nothing core but definitely a few short-term options, but then composed myself and started doing what I normally do when there is a massive market crash, I trimmed and sold my least confident positions to raise cash and bought shares of my most confident positions.
I sold my entire position of Okta ($OKTA) because I wasn’t very impressed with their earnings report nor their guidance. I sold some Fastly ($FSLY) options. I sold some Chegg ($CHGG) options. I sold a small bit of Sprout Social ($SPT) and I sold the majority of my < 1% positions.
What did I buy? I bought Peloton ($PTON), DataDog ($DDOG), Etsy ($ETSY), Zoom Video Communications ($ZM), Fiverr ($FVRR), Crocs ($CROX) and Roku ($ROKU) and a few other stocks.
Honestly, it pained me to trim my Sprout Social position because I thought they had a solid earnings report, but given the size of my holding, I needed to raise some cash.
I still have a good chunk of cash left that I plan on deploying if the market continues to tank. I also actually bought a bunch of put options on QQQ since I expect tech stocks to continue to drop in the coming weeks (I would gladly see those options expire worthless to have Friday be the last day of the market sell-off).
It was a pretty brutal week and I’m pretty disappointed with some of my decisions, but I continue to learn and adjust my techniques on portfolio management. Quite frankly, despite how big of an ass kicking my portfolio took, I’m pretty happy this happened since this sell-off really forced me to sell a lot of my portfolio’s “excess” and make some hard decisions on which stocks to keep and which to trim/sell. I am by far not the perfect portfolio manager, but I suppose it comforts me to know many professionals also had a rough week. I will simply have to continue to learn, trust my instincts and manage my emotions.
I am confident that my portfolio will rebound eventually after this bout of volatility concludes, and historically it has, but I do expect more downside in the coming weeks unfortunately. Even after the market rallied, most tech stocks that I owned were still slightly in the red:
Next Week’s Plan
DocuSign ($DOCU) announces earnings next Thursday and I fully expect them to crush estimates. I just hope that it’s a big enough beat that makes the stock go up. Zoom Video Communications ($ZM) had a good report that resulted in an initial spike, but apparently it wasn’t good enough since it proceeded to drop pretty significantly. I personally didn’t think Zoom’s report was anything to write home about given their decelerating sequential revenue growth and was pleasantly surprised that the market received it so well initially. When it started going down, I certainly wasn’t surprised just given the market’s mood lately.
If there is more volatility, I full expect to deploy my remaining cash and potentially incur some margin debt if the market drops enough where stocks I like are “huge bargains.”
At this point, the valuations of many of the tech stocks that I own are starting to look very attractive (especially the ones in green which I may Dollar-Cost Average into if there is more of a tech meltdown):
It’s interesting how “normal” the multiples are becoming again. Back before COVID spiked multiples, I recall how 30% growers usually had a 20 multiple and 40-50% growers had 30-40 multiples. Perhaps we have hit a bottom or near bottom.
Looking forward to a week where my portfolio can be green for once????