Smart Responses to Market Sell-Offs: Pro Insights

By: Avion Wealth | Published 08/12/2024

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By: Paul J. Carroll, CFP®

As Wall Street’s volatility is clearly spiking, what opportunities exist for you?

For months we’ve been discussing the risks of the Magnificent Seven (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla) and how a market so tightly aligned with those Magnificent Seven is also at risk. Since Friday, we’ve seen the Magnificent Seven shed $1 trillion in market value.

Why? Well, we’re seeing the hype of AI fail to match the reality, economically. There are real risks facing the chip-making industry. Most notably, we have TSMC out in Taiwan. The risk against Taiwan from China is significant, and risk to the global chip-making capacity is even greater.

Just last week it was reported that Warren Buffett pared his exposure to Apple by 50%. He believes in it in the long run, but he clearly feels that this run-up has gone as far as it should. Apple is down 6%, Nvidia is down 10%, Tesla is down over 8%. We’re seeing a lot of these tech stocks finally realigning with reality. Wall Street’s Fair Index is known as the VIX and it is actually at its highest since the pandemic. During the pandemic, the VIX, in March 16, 2020 was 66. Today it’s a hair under 59. Global markets as a result are in the midst of a rapidly-intensifying selloff.

So what’s triggered all this? It appears to be a not great, but not terrible jobs report. The July jobs report is typically a little lackluster due to a lack of mobility in the market during July, combined with the failure of the Fed to lower interest rates. But these are small triggers relative to a large reaction. That these two essentially non-events could result in such a significant market correction is indicative of just how fragile this run-up had become. The fact that gold is among the asset classes that has been hit suggests that margin calls are resulting in wealthy people having to sell their stocks of gold to meet those calls.

So what do we do now? Catching the bottom of a market is like catching a falling knife. It’s a really good way to get bloodied. At Avion, our clients are positioned to weather this volatility, and more importantly to take full advantage of the buying opportunities that will follow once this market correction is complete. We wish you the best of investment success, and should you have any questions, reach out to me or anyone on my team.

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