There are many positives in the stock markets right now. The third year of the presidential election cycle, which is normally the strongest of the four years between elections, delivered good returns as expected. We are in the colder months of the year which are often stronger than the warmer months, and the market has been confirming these strength cycles by posting 29 up days and only 10 losing days since the market bottomed on October 27th.
This feels like a Goldilocks market: Not too hot and not too cold.
Sentiment polls of newsletter writers, individual investors and professional money managers are all at bullish levels. That may sound good on the surface, but if you stop to think about it, these groups being so very positive really means that they are probably already invested. In that case, they are no longer potential buyers but have become potential sellers.
Prices are determined by the balance of buyers and sellers in a marketplace. The balance I speak of works a lot like passengers in a small boat. If too many investors move to one side of the boat, it can flip. With the extremely bullish sentiment data we can see a rising tide of potential sellers. That should be disturbing to experienced market watchers.
This year’s rise in interest rates is significant for more than just the percentage rise in rates. There is a fairly clear 60-year cycle in interest rates that was overdue for a bottom, and that long term bottom now appears to have been recorded two years ago. Despite a recent softening of interest rates, interest costs are still two or three times higher than two years ago, steadily bleeding consumers.
History is now suggesting that, since the long-term interest rate cycle has turned up, we should expect about 30 years of generally rising interest rates. Ugh! Interest is a big expense for many consumers, businesses, and governments, meaning costs everywhere are going up, creating a serious headwind for the economy and the markets.
What also concerns me is that rising interest rates have sent stronger markets than this one right into the tank.
Despite a market that is currently setting new highs, the historical precedents are sobering, and I feel the risk of stock investing is now higher than it has been in quite a while.
I sure like the comfort of being able to move quickly out of the market when needed, don’t you?
If you are not yet a Shadowridge client and you agree that the flexibility to step aside from a major market decline is an important component of investing, please give us a call at 888-434-1427. We’ll be happy to review your portfolio and alert you to the risks you may not be aware of.
