The Folly of ForecastingJuly 24 this year the S&P 500 traded around 4600. At the time, gains were almost 20% for the year. The bulls had all the momentum and analysts were ratcheting up their end of year forecasts. Some felt 20% YTD gains were not enough - calling for even greater upside. What happened? Stocks corrected around 10% offering investors a better opportunity. The game of near-term forecasting is a fool's errand...
Stocks Are Not CheapThe S&P 500 has had a fantastic first 6 months of the year - up almost 15%. That's a welcomed relief from the miserable 2022. But are stocks now too expensive? What's the premium investors are being asked to pay? There are a couple of ways we can assess this. For example, we can compare the earnings yield against the risk free rate of return (currently around 5.5% and going up). And whilst it's always good to maintain some (long) exposure to the market - we need think carefully about how much (and where)
Why Is it Different This Time?Whenever history looks like repeating - it's worth asking what's different this time? I say that because the past is never a guarantee of what's ahead. Put another way, if you are making decisions on that basis, you might be suffering from "confirmation bias". And that can be a blind spot. My (possible) blind spot is I think a recession is more than likely within the next 12 months. As such, I am only willing to put about 65% of my portfolio in risk assets. If I felt a recession was not likely - I would meaningfully increase my exposure. My bias is to lean into historical data (and leading indicators) which have reliably predicted recessions in the past. That feels logical. But I could be wrong.
Fed Likely to Pause (for now)With the debt ceiling deal behind us - markets will now focus on the next FOMC meeting. It's widely expected the Fed will pause on any rate hikes in June - especially given some of the underlying weakness in the jobs data. However, the market is not ruling out further increases later this year. I also take a look at AI boom in the market... call it "BoomGPT". Invest with optimism but do it with your eyes open.
First Major CasualtyThis week saw the second largest banking collapse in US history and the first since 2008. Silicon Valley Bank - with a market cap of $18B only 4 weeks ago - collapsed Friday after a furious bank run. SVB's collapse was far less to do with the Fed raising rates - it was all to do with poor risk management - forced to sell their holding of treasuries at a loss. But this is nothing we have not seen before....
Managing Risk During ‘FOMO’There are three important facets to the game of speculating required to make you consistently profitable: (1) understanding your psychology and emotions; (2) a deep understanding of how to manage your risk profile; and (3) access to a wide array of strategies that suit any range of market conditions. Today I think the first of these could be costing a lot of people money... in this case the "fear of missing out". This is a dangerous mindset which 'infects' a lot of speculators... don't let it be you.
A Challenging Year – What Did We Learn?It was a difficult year for traders and investors alike. The Index is on track to lose at least 19% - it's worst year since 2008 and 4th worst since 1945. However, this year also offers us valuable lessons. What worked? What didn't? What could we have done differently? And what can we take into 2023...
PatienceTraders (and investors) are wise to remain patient through this tightening Fed cycle. And whilst it is maturing... there's still more to go. Here I take a look at recent recessions... and some lessons to draw from. Don't be in any hurry here - we are likely to be headed lower
The 40-Year Tectonic Shift2022 will be remembered as an important turning point. Not because the S&P 500 surrendered 15% to 20%... it will be remembered for the tectonic shift in monetary policy. For the first time in over a decade - interest rates are finally trading at closer to "normal levels". What's more, we are not going back to 0% to 2.0% rates for a long time. And that has many implications for how to choose to invest...
Sorting the ‘Wheat from the Chaff’ in 2023There are two key criteria that every investor should execute in 2023. What worked for the past decade will not be the same for the next decade. Interest rates are going to be higher for longer. This post explores what that means...
