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One of the most frequent questions I’m asked in the course of my business is, “Why does the market behave the way it does?” There is an old saying on Wall Street that the market climbs up the stairs, but comes down on the elevator.
That’s really a true picture. I have found in more than 28 years as an investment advisor that the market, in its same old boorish way, slowly and steadily grinds up until…BAM! Five percent down in a couple of days or 10 percent down in a week. It happens. Maybe you’ve experienced this phenomenon yourself if you follow the markets on a regular basis.
The market tends to move up like it is climbing a staircase. Up a little, down a tick, up a little more, down a tick. But when it wants to really come down it takes the express elevator to the ground floor!
Let’s take a quick look at the elevator side of this story.
There are times when the market has a quick pullback, say 5 to 10 percent. These times in retrospect have turned out to be great buying opportunities. (Remember the 1990s?)
Other times we’ve had swift pullbacks in the market, which signifies a growth-to-recession mode. In the past few years we haven’t had any growth in the economy, so can we really have a recession? It just doesn’t make any sense.
And some of these times we simply see a period where the market just seems to be very choppy and trendless. I refer to these periods as a “time-out.” The time-out period is where we stand now. It’s been more than a decade since we experienced a time-out. Right now, a ton of factors are casting a shadow over the market with no clear consensus.
Here’s an example: For the folks who are concerned about disinflation, an equal amount will point out that inflation has almost doubled in the past 12 months, from 0.7 percent to 1.3 percent. Could this be why the market is in time-out?
Truthfully, I don’t know.
For the folks who are concerned that the Federal Reserve is way behind the curve and needs to immediately raise interest rates, there’s an equal number suggesting that the Federal Reserve follow Japan to negative rates.
Could this be why the market is in time-out?
Truthfully, I don’t know.
Politically (as of this writing), the nation is about slip into a Trump or Clinton or Sanders administration. Could this be why the market is in time-out?
Truthfully … ?
As an investment advisor (and an investor myself) it’s important not to get caught up in the news (or the noise) of the day. Each and every day you can open the newspaper or turn on the television and take in very different views on why the market is behaving as it is.
Just remember: The job of the media is to sell. They sell advertising (which is not a bad profession and one in which you can make a lot of money). But the media has no obligation to look out for YOUR best interest or even tell you the truth, for that matter. The media’s goal is to sell advertisements. So how do you think the media is going to position a story or describe the market? They’ll naturally twist a story to get a different, oftentimes, sensationalized perspective. So be skeptical about what you read and watch!
Personally, I use and study the charts because there is no “opinion” built into the chart. They only show price changes, and from those price changes, you can generally determine trends. And unlike other types of charts, point and figure charts are not subject to interpretation. The data is what it is. Charts either trend up, trend down, or stay in place. No opinion. Just the facts.