Will Carl Icahn’s Fears Come True in October?

On August 8, in an interview with CNBC’s Fast Money Halftime Report, Carl Icahn said, “We do have a lot of problems in this market.” He also said, “I’m not telling you I’m bullish on the market at all” According to Icahn, the ultra-lower interest rate and funds flowing into various index funds could be dangerous for the market. He’s prominent in the market because of his various investment strategies. The activist hedge fund manager is the founder and the controlling shareholder of Icahn Enterprises. His various investment ideas were fruitful for investors in the past.

Will Carl Icahn’s Fears Come True in October?

Carl Icahn said, “I don’t think just lowering rates is the answer. … If it were that easy, you’d never have these cycles.” The next FOMC meeting is October 29–30. Based on CME’s FedWatch tool, there’s a 44.9% chance for a quarter percent reduction in the interest rates. Icahn doesn’t think that negative interest rates will revive the economy. He gave Europe as an example. Analysts expect at least a 75 basis point cut this year. 

Carl Icahn’s fears in October

According to Icahn, the trade deal is necessary for the growth rate to continue at the current pace or expand more. The US-China trade talks will resume on October 10. President Trump said that the trade deal could happen sooner than expected. However, rising tension between the US and China about Hong Kong could delay the trade deal. President Trump’s impeachment inquiry could delay the trade talks. Remember, President Trump’s trade resolution terms are too steep for China.

Carl Icahn’s fears could come true in October. According to Goldman Sachs, the market might exhibit higher volatility next month based on the historical pattern. The earnings expectations for the quarter could be another important factor for the equity market. Usually, higher volatility leads to a decline in the stock market. In May and August, the CBOE Volatility Index rose 42.6% and 17.7%. Meanwhile, the S&P 500 Index (SPY) fell 6.6% and 1.8%, respectively.

Top buys

Carl Icahn’s firm has some changes in its holdings in the second quarter. The firm’s top two buys in the second quarter were Occidental Petroleum and Conduent. These two holdings were the firm’s fresh buys in the second quarter. They represent 6.26% and 0.95% of the firm’s holdings, respectively. 

Icahn Enterprises’ top five holdings in the second quarter were Icahn Enterprises LP, CVR Energy, Occidental Petroleum, Herbalife Nutrition, and Cheniere Energy. These securities represent 48.02%, 13.33%, 6.26%, 5.64%, and 5.53% of the firm’s portfolio holdings, respectively. 

Carl Icahn’s portfolio is sensitive to the business cycle

Among various economic sectors, Carl Icahn’s firm had significant exposure to the industrial sector and the energy sector in the last quarter. Energy stocks account for 25.24% of Icahn’s total investment. The S&P 500 Index has returned 18.8% on a year-to-date basis as of September 26. The Industrial Select Sector SPDR Fund (XLI), which tracks the industrial sector’s overall performance, has returned 22.7%. The Energy Select Sector SPDR Fund (XLE), which tracks the energy sector’s overall performance, has returned 4% during the same period. Cyclical sectors, like energy and industrial, could decline the most if slowdown fears increase like last month.

Top sells

Icahn Enterprises’ top five sells in the second quarter were Diamondback Energy, Cheniere Energy (LNG), Freeport-McMoRan (FCX), and Hertz Global Holdings. The firm reduced nearly 2.18, 0.66, 0.43, and 0.28 percentage points of the holdings from its portfolio in the same quarter. Although the firm reduced some of its holdings in Cheniere Energy, it was still one of the top-five holdings in the second quarter.