Don't "Outsmart" Yourself. Stay the Course! If your portfolio is properly designed for your unique objectives, risk tolerance and time horizon, you are at risk right now for making emotionally driven moves that could torpedo your long-term goals, objectives, and outcomes. We are almost TWO YEARS into this bear market and a ton of negativity is already baked into the cake. In fact leading stocks like AAPL (example only, not a recommendation) peaked way back in the Fall of 2021, long before most investors even noticed, and growth stocks have been leading yet again.
Regarding US "default" fears, as you can see in the chart below, though the U.S. dollar’s dominance has declined slightly over the last decade, it is still the most used currency on the planet and no one else is even close. Yes, our current path risks squandering our global monetary dominance and all the advantages that come with it in the future. That time is not now.
Truth is, despite our fiscal and monetary and geopolitical shenannigans, we still have the world's monetary printing press and there is not one politician in Washington who will refuse to use it once negotiations are done in a few weeks. It's virtually a foregone conclusion, but savvy politicians know they can make some hay and advance their agendas when the Damoclean sword of "catastrophic default" is hanging overhead. We have been through this many, many times before, and no amount of talk about the destruction of the "petro dollar" or financing overseas proxy wars is going to change that.
This raises a bigger, and fascinating, issue about negative events and the stock market. This is an area where there are widespread misperceptions and a lot of folk-lore, driven partly by a financial news industry that needs to produce 24/7 content explaining "why" various stocks and markets are rising, falling, or doing whatever they are doing.
Despite a pile-on of negative events in recent months, the major stock market indexes appear to have bottomed back in OCTOBER. While it's not unusual for markets to "re-test" a low, the technical charts as they stand now appear to indicate the "fire sale" on stock prices has already come and gone. (Of course, the future is unknown, and past performance is not indicative of future results. That said, history is potentially one of the most useful guides we have)
Many clients and prospects are perplexed by this. It's actually the norm in the stock market, historically, and underscores why market timing is much MUCH more difficult than even very smart people assume.
In a nutshell, in regards to major investable trends, markets don't turn on good news, or even bad news. They turn on mass psychology.
This is part of what the "market mystic" and top stock trader William Delbert Gann meant when he used to say "Time is more important than price. When time is up price will reverse" -despite news, projections, and current events.
When people begin to subconsciously turn positive about their future (which is a subconscious – and not conscious – reaction within their limbic system, as has been proven by many recent market studies), they're willing to take risks. What is the most immediate way that the public can act on this return to positive sentiment? The easiest and most immediate way is to buy stocks. For this reason, we see the stock market lead in the opposite direction well BEFORE the economy and earnings have turned.
Billionaire investor Warren Buffett carefully explained in simple terms why the U.S. will never default on its debt. When a concerned shareholder asked him whether there was a risk, he didn’t prevaricate, but started with a “no.”
“If you print bonds in your own currency, what happens to the currency will be the question,” said Buffett. “But you don’t default. The U.S. has been smart to issue its debt in its own currency.”
Former Fed Chair Alan Greenspan put it this way:
"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default"
The great majority of the time, sentiment will offer you a much better indication of the direction of a stock as compared to earnings.
You see, while earnings may be a catalyst to a stock move, it’s the underlying sentiment which will provide the “spin” as to the directional movement of that stock. This is why we often see stocks move in the opposite manner of the reported earnings or projections/guidance. By the time earnings are affected by a positive change in social mood, the social mood trend has already been positive for some time. And this is why economists fail as well – the social mood has shifted well before they see evidence of it in their "indicators."
And it's not so easy to gauge this turn in sentiment, because it's not the same as the sentiment the agenda and objective driven news media is trying to tell you is relevant.
In fact, the most accurate depiction of real sentiment may be the stock market itself!
As technician Ari Gilbert explains:
The change in sentiment occurs deep within our basal ganglia . . our primitive brain. Consider this study from 1997 (and there are many more like it):
“Stock markets are fascinating structures with analogies to what is arguably the most complex dynamical system found in natural sciences, i.e., the human mind. Instead of the usual interpretation of the Efficient Market Hypothesis in which traders extract and incorporate consciously (by their action) all information contained in market prices, we propose that the market as a whole can exhibit an “emergent” behavior not shared by any of its constituents. In other words, we have in mind the process of the emergence of intelligent behavior at a macroscopic scale that individuals at the microscopic scales have no idea of. This process has been discussed in biology for instance in the animal populations such as ant colonies or in connection with the emergence of consciousness.”
So, Don't Outsmart Yourself.
If you need a second opinion on your family's investments or a financial plan, just reach out and our Maendel Wealth team will be glad to help.
Stay the Course