Runnymede believes that monitoring the financial climate is important in order to be successful as an investor. With 24/7 news reporting, live tweeting, and high frequency trading, it is easy to be distracted by the daily noise and the immediate impact on stock prices. Rather than dealing in milliseconds, it can be helpful to take a step back for a different perspective. Below is a chart showing the total return of the S&P 500 by decade in which you can see that performance over the past six decades has been impressively positive until the last one.
Reacting to Exogenous Variables in Financial Weather Forecasting
Both commodities and stock markets are considered leading indicators in economic analysis and forecasting. In 2014, the prices of industrial commodities including copper, oil, gas, steel and coal declined sharply. On a currency adjusted basis, the stock markets of Germany, Japan, Brazil, Australia, United Kingdom, Russia and Austria also fell. In the United States, the Dow Jones Industrial Average started the year at 16,576, down 2.8% to 15,935 as of October 16th while the Russell 2000 small cap declined 6.6% and S&P was flat in the same time period. The markets were signaling a possible economic slowdown in the G7 countries.
Introducing the Financial Weather Watch
At Runnymede, we believe in the famous Boy Scout motto “Be Prepared.” The Scout motto means that you are always ready to do what is necessary to help others. It also means you are ready, willing, and able to do what is necessary in any situation that comes along.
We find it odd that Wall Street has indoctrinated investors into believing that they shouldn’t be prepared (or take action) for market downturns. Just staying the course doesn’t work in all market scenarios.
The Bull Market is on Borrowed Time
Over the last month, the bull market looked to be running on tired legs. Small cap stocks (Russell 2000 Index) fell 11% since the beginning of September while the S&P 500 dropped 7%. Many investors have been waiting for a much needed breather in the market runup; however now people are asking, “”Is this bull market over?”” The obvious answer is definitely maybe.
What If You Cannot Afford To Be Hit By The Next Stock Market Crash?
The stock market is going to crash one day, of that you can be sure. Stated another way, Morgan Housel recently wrote at the fool.com:
Markets crash all the time. You should, at minimum, expect stocks to fall at least 10% once a year, 20% once every few years, 30% or more once or twice a decade, and 50% or more once or twice during your lifetime. Those who don't understand this will eventually learn it the hard way.
Well said. The question is, “”How will you deal with it?””
A red flag? Market divergence may awaken the bear market
Last week, the Dow closed at an all-time high and the S&P 500 traded very close to its historic high. For investors glancing at the headlines, all seems fine and dandy. It's like sailing a boat with beautiful skies and perfect wind conditions. However storm clouds may be right around the corner. Everything isn't signaling a raging bull market, that is for certain.