The Current Stock Market Environment Reminds Me of a Hurricane | ETF Trends

By Rob Isbitts via

We need to remember that, at some point, the market will return to its unfinished business from late last year.

Investment markets can be confusing. To try to cut through the chatter and investment slang, we present this monthly view to you. We want to give you a 50,000-foot view of market conditions updated as our view evolves. Currently, our Investment Climate Indicator remains at Stormy. Stormy means that bear market rules apply, and we believe could be a period of wealth destruction.

It’s quiet. Too quiet.

As I mentioned in last month’s report, the current stock market environment reminds me of a hurricane. Specifically, the eye of the hurricane — the sunny, calm respite between the front and back sides of the storm. The month of April did nothing to change my mind. And as the S&P 500 fell more than 1% in about 90 minutes on the first trading day of May, we must keep reminding ourselves that at some point, the market will return to its unfinished business from late last year. While many investors appear to have forgotten already, the S&P 500 fell over 15% in 3 weeks last December, and only a Christmas rally (miracle?) kept that index’s losses for the full year 2018 to 4.4%. As of Christmas Eve, the S&P was down over 10% for the year.

Why go back to all of this recent history? Because there is a sense among many veteran market watchers (including yours truly) that fear has left the building. Or, to put it another way, the only thing we have to fear is missing out on more great stock market returns. And that, otherwise known as FOMO (fear of missing out), is creating a kind of investor uneasiness that is most reminiscent of the dot-com bust of 1999-2003. The biggest mystery is that we just don’t know how close we are to the end of the long bull market for stocks. And while some would argue we are closer to the beginning than the end, and that the bull will run forever … well, let’s just say that while anything is possible, I’d prefer to keep emotions at bay and recognize that we are more likely in the eye of the storm than in the clear.

A lot of what determines how much can be squeezed out of the old bull before the bear moves in has to do with the economy. Specifically, when will a recession arrive, or at least enough of a threat of one to stir investor emotions. After all, with algorithmic trading and index funds continuing to dominate trading activity, the emotional side may be all that matters. And the Federal Reserve continues to keep investors guessing about what their interest rate policy will be. This is a game that Wall Street plays with itself, but it is no game when it causes the value of your investment portfolio to be tossed around as it was through portions of last year.

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