3 Tips You Need To Know If Market Slides

Summary:

Our 24/7 Wall St. Analysts Doug McIntyre and Lee Jackson recently discussed UBS’s downgrade of the entire technology sector and the broader implications it may have for investors. While mega-cap companies like Microsoft, Meta, and Alphabet are expected to remain long-term leaders, other technology stocks may face greater risk. Companies such as Western Digital, SanDisk, and Micron Technology have benefited from supply constraints that may not persist.

As Jackson notes, UBS recommended that investors look at healthcare, which has lagged for a couple of years, as well as utilities.

“Healthcare offers some significant dividends, which can appeal to Gen X and Boomer investors,” Jackson explained.

McIntyre also had some suggestions.

“I want to suggest that everybody who can hear the sound of our voices take a look at this,” McIntyre says. “The market is unsteady now. I would suggest that everyone set triggers on every stock, ETF, or mutual fund they own. Decide now where you are a rational seller. If the market starts to slide, make up your mind now. When markets get volatile, people are not rational.”

Both Jackson and McIntyre agree that prudent risk management, including stop losses, hedging, or taking profits will be essential in an uncertain market environment.

“Wall Street is the house,” says Jackson. “Don’t forget that. And the big companies with huge assets under management are the house. Protect yourself.”

Transcript:

Doug McIntyre: I noticed, Lee, that UBS downgraded the entire tech sector. Everything.

Lee Jackson: They did.

Doug McIntyre: If you read the notes, everyone knew what they were going to say – the risk with AI, the data centers, circular financing. Will AI ever make any money, or will it just be a free, very nice toy? Is this the beginning of that? Do you think there are going to be other downgrades, not of companies, but of the sector?

Lee Jackson: I think there could be. Wall Street is usually a day late and a dollar short. There has already been a big rotation out of tech. The Magnificent Seven basically led the stock market for three years in a row, and there were double-digit gains on the S&P and the Nasdaq three years straight. It has been stellar. Technology always has driven the stock market since the early 1990s, even though the names that lead it change.

After this run, free cash flow for some of these companies is shrinking because they are doing so much financing. There will always be long-term winners. Microsoft (NASDAQ: MSFT) | MSFT Price Prediction will be there, Meta Platforms (NASDAQ: META) will be there, and Alphabet (NASDAQ: GOOGL) will certainly be there. But some of the more marginal companies that have had huge runs, including Western Digital (NASDAQ: WDC), SanDisk (NASDAQ: SNDK), and Micron Technology (NASDAQ: MU), could be more vulnerable. In some cases, their strength has been driven by supply constraints, which may not last.

UBS recommended that investors look at healthcare, which has lagged for a couple of years, as well as utilities. Healthcare offers some significant dividends, which can appeal to Gen X and Boomer investors. We also recently covered a piece from Jefferies that remained positive on utilities but shifted focus away from companies like Duke and Dominion toward other players in different parts of the utility eco chain there. It will be interesting to see which firm downgrades tech next.

Doug McIntyre: Even today while we are talking, there is a huge sell-off in tech.

Lee Jackson: Big.

Doug McIntyre: The point of a Reuters story that just came out is that big tech led the market up, and the question is whether it will lead the market down. If you look at today’s trading and what we have seen over the past few days, the answer may be yes. Big tech has such a large weighting in the indices that when those stocks sell off, they drag the market down with them.

Lee Jackson: You are so right about it. All of those big tech names are massive holdings at BlackRock (NYSE: BLK), Vanguard Group, and Fidelity National Financial (NYSE: FNF). These positions are managed by computer trading systems with preset sell limits. It is not a portfolio manager casually deciding a stock is too expensive. If selling begins to cascade, no major firm wants to be the last one holding the position. Nobody at BlackRock is gonna be the last guy to shut the door, I’ll guarantee you. Or Vanguard or Fidelity or whatever.

Doug McIntyre: I want to suggest that everybody who can hear the sound of our voices take a look at this. The market is unsteady now. I would suggest that everyone set triggers on every stock, ETF, or mutual fund they own. Decide now where you are a rational seller. If the market starts to slide, make up your mind now. When markets get volatile, people are not rational.

Lee Jackson: That is true. Investors either panic and sell at all costs or convince themselves to buy the dip. Buying the dip has worked for three years, but there is a point where it does not. If you have big Nvidia gains, put in a stop-loss so you do not give it all back. I’ve said this a million times, “They don’t build those big casinos in Vegas because the house loses.” Wall Street is the house. Don’t forget that. And the big companies with huge assets under management are the house. Protect yourself.

You can also hedge by buying out-of-the-money puts on an index like the S&P 500, perhaps 15% out of the money. Then, if there is a serious sell-off, those positions can help offset stock losses. Do something to protect yourself.

Doug McIntyre: Or if you have long-term gains, do the simplest thing in the world, take whatever you have gained and sell a large portion.

Lee Jackson: Nobody ever went broke taking a profit. People worry about capital gains taxes, but even if they are short term, you are still keeping money. Just protect what you have. If necessary, you can later offset gains with losses to balance your tax situation. Again, the reason they give free drinks and keep oxygen flowing into casinos is they like to keep you at the table. Because the longer you stay, the more likely they are to get their money back. Protect what you have. Setting stop losses or sell limits makes sense in this kind of environment.