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Breakfast Bites - World Events and Managing Your Portfolio

Some sector picks and what to avoid

Rise and shine everyone.

There’s a lot going on in the world right now - and none of it good.

We’ve got a devastating hurricane in the US, a major port strike, and the Fed coming in a little more hawkish than expected. Labor market data this week has been more stable. Job Openings went up again yesterday, which shows there is still some residual tightness in the market.

The question will then be: How will the hurricane and the port strikes affect the data? We will see the effect of both on not just the labor market data but, also the inflation data. JP Morgan says the strike could cost the US $5B per day. A prolonged strike of more than 3 weeks, could get very troubling. The skewed data doesn’t give us a clear picture of how monetary policy is affecting the numbers - not just from the Fed but also after the major Chinese measures.

We’re also in the home stretch of the US elections. This is when volatility starts to increase and most companies, including financial firms, don’t make major capital allocation decisions until they see the outcome of the election.

And as if all this wasn’t enough, we’re seeing a major escalation in the Middle East. Iran launched missiles yesterday and now Israel has vowed to retaliate. There are severe clashes going on in Lebanon. Yesterday’s, market reaction was definitely the Middle East tensions because we saw Crude Oil spike and US Treasury Yields move lower.

What should we do in the face of such unfortunate events?

  1. Put on some hedges. While we’ve already seen the market move considerably, it’s never a bad idea to hedge your portfolio. Puts are still relatively cheap.

  2. Take some profits: The market is heavy in tech, particularly the Mag 7. But, we’re also seeing a slowdown in earnings estimates and the market wanting to broaden out of AI exposure.

  3. Rotate and broaden out: We are coming up on earnings season and we’ve already started to see the handoff. Earnings estimates for the rest of the S&P 500 is picking up. A pullback in the market would be an opportunity to start to broaden out the portfolio. Large caps, defensive, and selective plays could work very well.

Sectors/ Industries we like:

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