Highs

November 6, 2019 - Published by IAG Wealth Partners

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Over the last week the S&P 500 Index, an index that tracks U.S. large cap stocks, has set a number of new record highs.

The drought between record highs lasted from late July to late October as traders digested an on-again-off-again trade deal with China, gradually weakening economic reports, and political developments in the U.S. and Europe.

Reaching a record high and maintaining upward momentum are two very different things.

Sometimes after reaching a record high, traders will start taking some profits and the upward climb will stall. Traders’ fear of loss can outweigh their optimism about the future.

Other times the upward trend is so strong it leads to periods of frequent new record highs. The fear of missing out (FOMO) is a powerful force that motivates traders to buy even if the facts don’t necessarily support it.

So where will we go from these record highs? Needless to say, the future is by definition unknown. Predicting what millions of traders around the world will do based on what they believe other traders will do every day is impossible.

However, there are two short-term trends to watch.

First, traders’ expectations for future volatility have plummeted. This seems odd given that none of the uncertainties that stopped upward momentum this summer have been resolved. However, traders are optimistic about trade deals, interest rate cuts, and political resolutions. When traders underestimate risk, surprises happen.

Second, over the last nine weeks analysts’ estimates for earnings for the next 12 months for companies in the S&P 500 Index have been absolutely flat, yet the index itself has risen almost 5%. Traders are either bidding up share prices in anticipation of growth beyond the next 12 months or the fear of missing out is just simply too much.

These observations are very short-term and may influence market direction over the next few months. However, our long-term strategy for our clients is to carefully balance your need for long-term growth and short-term cash flow instead of trying to guess what traders will do tomorrow.

Please enjoy the record highs while they last but be sure to stick to your investment risk budget because there is no notice before they stop.

 

 

Quote of the week: Bob Farrell: “Fear and greed are stronger than long-term resolve.”


Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.
Past performance is no guarantee of future performance. In fact, the opposite can be true. The information contained in this report does not purport to be a complete description of the securities, markets, or development referred to in this material. Investing involves risk including loss of principal.

The S&P 500 is an unmanaged index of 500 U.S. large cap stocks. One cannot invest directly in an index.

Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.

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