The Stock Market Is Going Crazy!

1. Market Volatility: Recent market swings have been unusually extreme, driven by economic data, policy decisions, and investor sentiment.

2. Fed's Rate Hold: Jerome Powell announced the Fed would keep interest rates steady, facing criticism for not cutting rates sooner to boost the economy.

3. Sahm's Rule Triggered: A reliable recession indicator, Sahm's Rule, has been triggered, suggesting a near-term recession is likely.

4. Fear and Greed Index: The index shifted from greed to fear within a week, indicating increased investor anxiety and market unpredictability.

5. Buffett's Apple Sale: Warren Buffett sold 50% of his Apple shares, which some see as recession preparation, but could also be strategic profit-taking.

Introduction

As value investors, we usually don’t worry about short-term market ups and downs. We focus on the long-term fundamentals of the companies we invest in. However, the recent market swings have been so unusual that we need to discuss them. The past few weeks have seen big changes, driven by economic data, policy decisions, and investor feelings. This article will explore these events and what they mean for value investors like us.

US Recession fear

One major cause of the recent market turmoil is the Federal Reserve’s decision on interest rates. Jerome Powell, the Chair of the Federal Reserve, announced that the Fed would keep interest rates steady, even though some people want immediate cuts. This decision has faced a lot of criticism. Some believe that lowering rates now could help the slowing economy. But Powell said the Fed isn’t ready to cut rates until they are sure inflation is moving toward the 2% target. He mentioned that rate cuts might happen in September, depending on upcoming economic data.

Another concern is the triggering of Sahm’s Rule, a reliable recession indicator. Sahm’s Rule says a recession is likely when the three-month average unemployment rate rises by at least 0.5 percentage points compared to its low in the past 12 months. This rule has never failed before, and its recent activation has worried many in the financial world. It suggests that a recession might be near. This has added to the market's anxiety and volatility, as investors prepare for a potentially tough economic period.

Fear and Greed Index

The Fear and Greed Index, which measures how investors feel, has also played a big role in the current market state. This index swung dramatically from mid-neutral to almost extreme fear in just one week. Such a fast change is rare and shows a significant shift in investor behavior. The Fear and Greed Index looks at factors like market momentum, stock price strength, and volatility. A quick move to fear means investors are very worried about the market’s future, leading to more volatility and unpredictable market movements.

Warren Buffett’s Big Apple Sale

In the middle of this chaos, Warren Buffett’s decision to sell 50% of his Apple shares stands out. Buffett, known for his long-term investment strategy, first bought Apple shares in early 2016 when the stock was very cheap. This move was initially doubted but turned out to be very profitable as Apple’s stock price soared. By 2024, Apple reached new highs, thanks to new technologies and strong performance. Buffett’s investment in Apple has been key to his portfolio, making his recent sale even more significant.

Many in the media see Buffett’s sale of Apple shares as a sign he fears a recession. Analysts think he is worried about the economy and wants to protect his gains. However, it’s important to consider another view: Buffett might be taking profits strategically after Apple’s stock hit a new 10-year high following the announcement of Apple Intelligence, their latest technology. This fits with Buffett’s approach of selling when prices are high and investing in undervalued opportunities, rather than reacting to market fears.

Conclusion

In conclusion, the recent market changes show why it’s important to stay informed and keep a long-term view. From Powell’s rate decisions and Sahm’s Rule to the Fear and Greed Index and Buffett’s moves, these events highlight the need for careful analysis. As value investors, we should navigate these times with patience and care. If you have any questions or thoughts, please leave a comment or reply to this email. We’d love to hear from you!

Happy investing!
Josh

P.S. I want to give a special shoutout to the newsletters I currently enjoy reading:

• Capitalist Letters

• Make Money, Make Time

• Quality Stocks

• The Weekend Investor

The information is provided for educational purposes only and does not constitute financial advice or recommendation and should not be considered as such. Do your own research.