By Jay Sanford, Director, Investment Strategy
History shows you can follow certain indicators to get a decent gauge of where we are in the market cycle. If you saw our Mid-Year Outlook, you know we are looking at various indicators which include the yield curve (my personal favorite), peak manufacturing and peak earnings to name a few. These indicators are flashing “yellow” in our book, meaning they might be peaking and/or flattening (in terms of the yield curve). So, we may be entering the final stages of a market cycle before we hit a recession. That doesn’t mean the stock market stops advancing (as seen by the last few record-breaking days). On average you could easily have another 30+ months of gains. Don’t get us wrong, volatility will be on the rise too, so the market may be quite bumpy, but these indicators by no means portend an imminent prolonged downturn.
All of that said, I have my own personal indicators, all of which are not numerically or scientifically provable, but worthy of consideration. My first one is the “I am doing this on the side…” indicator. You have all heard it. Your hairdresser is trading options, your uber driver is flipping houses, your bartender is mining currencies. For the record, this is not a commentary on their professions. We appreciate and respect hard work in whatever industry you choose. Furthermore, it is not a commentary on peoples’ ability to learn a second craft and succeed in said craft. BUT, when you see a trend of people looking for a way to make a cheap dollar in what is perceived an “easy” way, it flashes red flags to me. People earn good livings doing those things, and many times it is based on long term experience and the knowledge gained from that seasoned experience. For the record, I have heard many people discussing their “doing it on the side” gigs. It concerns me.
My second personal indicator is when I hear the statement, “But this stock couldn’t go down given what it does”. DAAHHHHHHHHHH! Stop right there! YES IT CAN! They all do. So, trading in it, using derivatives within it, etc. creates a risky environment when your perceived base fact is “it can’t go down”. I won’t mention the stocks I have heard people discussing, but there are a few and they are susceptible to volatility, like all stocks are. It concerns me.
Bottom line, a couple of my personal unscientific indicators are flashing yellow as well. There is a lot of chatter out there and lots of people starting to get into games they don’t necessarily know how to play or have the patience of playing long term. My general advice, be wise, diversify, be long-term thinking and understand your risk tolerance and the risk your investments have within them. Importantly, keep the lines of communication open with your financial advisor. They have seen this before and can provide much needed perspective on the markets and how they act.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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