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A Quick Note on Market Volatility
I don’t think the best search engine optimization practice is to recommend the real title I wanted to use: “Shit Happens…Often.” But including it in the body is probably good enough, eh?
Man, I suspect we will be seeing a lot of “Sell in May” references by the time this month is over. Heading into today, the S&P 500 is already down over 4% for May and we still have three trading days to go. Considering today’s weak market, I’m betting we could see a 5% decline for the month.
In contrast to the equity market, Treasuries have been doing well. The Bank of America / Merrill Lynch index of long-term notes, which basically looks at Treasuries that are 10-year and longer in maturity, U.S. Treasuries are up over 4% for May. A 4% monthly decline for equities isn’t that rare…According to Bespoke, there have been 40 prior occurrences since 1990. However, when it’s accompanied by a rally in U.S. Treasuries of this degree, it’s a lot less common. They also note that “since 1990, there have only been ten other months where the S&P 500 was down more than 4% heading into the final three trading days of the month while at the same time long-term U.S. Treasuries were up over 4%.”
They go on to say that there is usually a rally when that happens, but I don’t think anyone should be pegging any hope on that.
The real issue is the economy. People sell stocks and buy bonds when they speculate that the economy will do poorly. I believe the basis for this slowing economy sentiment is grounded in the China trade issue.
Okay look, I get it. China news gets everyone speculating that there could be a slowdown, and frankly it could be true. But I don’t think it’s a tradable event. What’s different today than a month ago? Rhetoric out of both governments? That’s saber rattling until it’s not.
For now, I still see MONCON 5. I see nothing in the model suggesting that we are in a recession nor do I see data that suggest we are within six months of a recession. It’s true that headwinds have picked up, but a slowing economy is no where near the same thing as a negative economy (recession).
Actually, the most interesting data I see that feeds into MONCON is the massive uptick in Google search volume for the word “recession.” Since that’s the only thing that’s up-ticking, I think it’s indicative of some emotional response to the news cycle.
Sit tight right now – don’t react to this month’s poor equity market performance. Remember to anticipate your cash needs and as always…
Keep looking forward.
Dave
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David B. Armstrong, CFA
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
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Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“Monument”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. No amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if Monument is engaged, or continues to be engaged, to provide investment advisory services. Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.
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