Today is the first trading day of August, a seasonally weak month of the year. This pattern usually occurs as investors/traders go away for summer vacations, come back to see that the market has been up throughout the summer, so they do some selling. You can start seeing this sentiment last week, when big companies reported and the actions were either very muted to beats, or very negative to misses (look at Facebook, Apple, Amazon, Google, Microsoft). Currently, we don't see any catalysts that can push the market higher: we're trading at historically very high multiple, while stimulus money have ran out and earnings have been perceived to be as good as it gets. In fact, we see many risks that can lead to a big correction: tapering from the Federal reserve, resurgence of Delta variant, debt ceiling that Congress has to deal with .... We've done some selling, and have purchased some puts to protect our portfolio and seek to profit on the downside. We want to see a ~10% correction to 4000 by the end of September, we think this would be very healthy for the market and would be a great buying opportunity then. 

Going into year's end, we need to update our worldview and position our portfolio accordingly. Also, we need to determine a playbook/ strategy given the current conditions and what has happened in history. Remember, we're in the 2nd year of a recovery from a recession, and prior to the 2020 Covid recession we've had 2 big recessions in this century (2008 financial crisis, 2000 tech stocks crash). When we look at those previous cycles, we see the following:

In previous recessions and certainly in the 2020 Covid recession, rallies off recession lows were supported by investments through Fed monetary support and Congressional fiscal stimulus. At this point, the excess liquidity is either at or near peak. This is good news for a more sustainable economic growth rate, but historically ushers in a period of instability for the financial markets as that excess liquidity transitions into economic activity. In the past two cycles, that transition also led to an early peak in the 10-year UST yield that trended lower through the summer as investors feared a possible echo of the prior recession. Those summers of indigestion were followed by ramps in the economically sensitive sectors into year-end. 

Putting the playbook into play, we want to buy cyclicals into August-September weakness, and anticipate them to rally into year's end.