Patience
Posted on Sunday, September 8th, 2019
We have cautioned our clients about the evils of emotions when investing. This past month has given us a good example of why it is important to keep your wits about you and remaining calm while the roller coaster of stocks runs up and down careening about. It is not always easy to remain calm when we are assaulted on a daily basis with the news of another 600 point decline on the Dow Jones and evidence of a recession on the horizon. The reality is that if we are properly allocated with a diverse set of assets we have bought protection against a recession and subsequent stock market downdraft. Well, our patience has paid off – for the moment. This week saw a modest increase in prices for the S&P 500 and perhaps a breakout of sorts. The S&P rose 1.8% to close at 2978. Recently, we wrote that we were cognizant of a smaller consolidation range on the S&P between 2830 and 2960. The breakout above that 2960 level now lends the advantage to the bulls and given history that would portend a rise into the old highs near 3025.
It is interesting to note that in the midst of a trade war between the two biggest economies on the planet, faced with a global recession and elevated stock market valuations stocks have managed to stay within 5% of their all time highs. While valuations have not retreated from their historically elevated positions what we don’t have is sky high investor sentiment. Investors are pretty cautious right now as corporate buybacks have helped keep stocks from slipping. Investors, having fled this market in anticipation of a recession may be forced back into this market if prices remain stubbornly elevated.
While we have seen a series of higher lows for the S&P since December of last year our confidence in the stock market would be greatly improved if new highs included the participation of small cap stocks and transportation stocks. Small caps and transports are still stuck in neutral. Keep an eye on FedEx. If FedEx can break out of its downward trend then perhaps stocks are on to something. I need more proof of stocks behaving before recommitting capital – especially at this time of year.
It seems as though Wall Street is now buying bonds for capital appreciation and stocks for yield which is in direct contrast to how these investments were intended. Be very careful chasing yield here especially for retirees. Chasing a 5% yield can easily turn into a 15% capital loss. We are turning an eye towards Europe as those valuations are much lower and yields on stocks are much higher. This week was a consolidation week for precious metals and US Treasuries as their recent meteoric rise took a rest. While we think precious metals are in for a multiyear up trend this past week gave an indication that perhaps some rest is needed.
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.