I know many have heard my comparisons, namely get in the
car (invest) step on the gas (take more risk) slow down (take less risk). The
process is incumbent upon the same influences as a drive on a highway, such as
plenty of sunshine giving way to bad weather. But the key to this approach is
twofold, don’t get out of the car and don’t let your mood let you think you see
bad weather on the horizon. See it and know, as history has frequently reminded
us most storms are usually far enough away to predict, and signals whether or
not to actively slow down.
So now that the markets have rebounded from last week’s
volatile swings in addition to the nearly 10% correction of all of the broad
indexes can we expect an orderly dialog from the industry experts. Not really,
and that’s mostly because the difference between those who actually mange money
and those who simply talk about it is perspective. Rather than drool when
markets rally, as what goes up must come down, patience is a better tool. But
human nature is unfortunately wired to pursue the opposite. Take for example
the inclination to chase after a rally out of fear for missing it. The
challenge is made harder from correction as we’ve just experienced because
knowing when to become cynical about a recovery in stocks could come later as
easily as sooner. In my opinion, there are reasons to consider it could come
later.
Consider the economy. As mentioned recently the presence
of inflation is a call to caution, but caution is a constructive tool in
keeping enough investors on the sidelines to tip market supply and demand to
favor demand. There is also the tax season that for now until at least April 15
will bring a substantial amount of earmarked cash into the market. Consider the
Fed open to any continued evidence of economic heat is unlikely to refrain from
raising rates at their next meeting, and an interest rate hike could moderate
some concerns regarding inflation.
Also consider the current tone of broad markets. As
volatility has remained more indecisive than unruly many of the technical
indicators that read momentum and trend distribution made a compelling argument
for buying on the recent dip. Those indicators are still friendly and the
markets are clear in telling us not to chase them. Additionally it’s important
that the sudden increase in volatility and interest rates suggest adaptable
strategies for moving ahead, in particular looking at investments that are less
sensitive to volatility and some to benefit from specifically stronger sector
growth.
As a final note, in the middle of market rallies I’m
often asked if it’s a good time to invest. My common answer is that it’s really
more a good time to already be invested. I still think so now, but keep in
mind, the balance between comfort and expectation is always present but was
highlighted during the recent declines. In short, there is never a bad time to
consider getting comfortable.
