Although the last few weeks we’ve been talking about green shoots, let’s be clear - WE ARE STILL ON DEFENSE!
We’ve been ‘risk-off’ since November 21st, not knowing the future any more than the next person, but we use our indicators to tell us how we should be positioned. On November 21st, those indicators said we should be risk-off and on defense, which is where we have been since that time.
But just like the seasons where spring always follows winter, a bull market always follows a bear market. The trouble for most investment managers is figuring out when spring is emerging.
We’ve said that even with the green shoots popping up, we are looking forward to the time that our model goes positive. Risk-on and on OFFENSE. That’s not today and it may not be for weeks or months, but it will happen. Here’s a look at the VIX (volatility index).
You can see that the VIX, a measure of fear, is blasting to COVID levels and may likely mark a short-term bottom in the market. Again, it doesn’t change our thoughts of the market but gives us other data point to look at to see whether things have bottomed.
From our good friends at SentimenTrader, expanding new lows typically lead to new lows in the markets.
That was triggered Thursday, so we will see what happens once this all plays out.
The markets have been vacillating around two interest rate cuts this year. With the current happenings, those predictions have expanded to roughly three or four cuts.
The FED has said that they are on a wait and see as far as rate cuts go.
Meanwhile, the S&P 500 was down basically 6% on Friday and over 10% for two days.
Being on defense means we have been down anywhere between a third to a half of the market as a whole depending on risk tolerance. Looking beyond the S&P500, small caps are in a “bear market" (down more than 20%) and NASDAQ 100 down almost 22% from its highs in February.
I’ve been getting quite a few phone calls or emails asking how we are doing. As in, making sure we are ok. We’re great, as are all of you! Being on defense doesn’t mean you aren’t going to lose money. It means, relative to the markets, you will lose far less than the markets will.
Our goal is to be able to keep you in the “game.” Meaning losing less money so that you don’t throw in the towel at the worst possible time (the bottom). Having been in this world for a long time (longer than I care to admit), I have seen the ups and downs. Volatility to the upside is fine and nobody cares about that. It’s volatility to the downside that everybody cares about, and the part that few handle very well.
We have had people that pull the “ripcord” from a perfectly good plane only to see the plane get through the turbulence and fly smoothly again. Our goal is to make sure you are not one of the people that pull the ripcord.
Finally, bonds have been a friend for our portfolios this year. As the stock market has sold off, the bond market has done very well.
It may not offset the entire loss from the markets, but does offset a large part of it. Make sure you check your accounts (or read our Monday pieces) rather than watch the news for investment information.
Wrapping up on an unrelated note, baseball is in full swing and the “torpedo” bats are all the rage. Not sure if they are legal or not, we’ll leave that to the MLB and we’ll tip our caps to those who thought outside the (batter’s) box to try a new approach! If you have any questions or are losing any sleep, please reach out and we will be happy to have a conversation.