By John Stewart, chief investment officer at Farmers Trust Co.
Week in Review: Are Markets Getting Spooked?
There doesn’t seem to be much that can spook markets these days, but there are some scary signs of froth developing that could eventually become an issue.
This past week had plenty to keep investors occupied with lots of Big Tech earnings reports, the Fed decision on interest rates (they cut the Fed Funds rate by a quarter-point, as expected), and the meeting between President Donald Trump and Chinese president Xi Jinping.
The stock market rallied strong into all these news events and then started to wobble a bit toward the end of the week.
Market breadth has been terrible, meaning that a lot more stocks were falling than rising despite the indexes reaching new highs on the back of just a few large tech companies.
It seems more likely than not that the market can stay relatively strong into the end of the year, but we’re starting to see some cracks in the façade – so probably not a bad time to reassess your tolerance for risk.
Featured Insight: Markets Are Smart
Markets are pretty smart – most of the time.
Occasionally, there’s an opportunity to take advantage of market mispricing, but you should usually start with the assumption that the market has more information than you do.
Therefore, if the price of stock is moving in a direction that doesn’t make sense to you, it could be because the market knows something that you don’t. Don’t assume you’re right and the market is wrong.
This may lead to riding a losing position to much deeper losses.
There’s a reason that there’s a popular old market saying to cut your losses short and let your winners run.
Looking Ahead: November and December Are Usually Strong
The last two months of the year tend to be very kind to investors, with November and December clocking in as two of the best months for stocks on average.
While this is certainly encouraging, averages can obviously be misleading. There have been plenty of instances where stocks fall in the final two months of the year – 2018 comes to mind; the S&P 500 index fell roughly 20% into the Christmas holiday that year.
We’ll continue to get a lot of corporate earnings reports in the coming weeks, and so far the earnings picture looks quite strong.
The big question remains, however – how much good news is ALREADY priced into stocks? A lot of strong reports in recent weeks have actually been met with stock selloffs. When the bar is already really high, it’s a bit harder to jump over.