Risk, whipsaw, and the roller coast has certainly returned to the markets this month. At the end of July, the markets got a Fed rate cut, which it cheered. Then booed as many complained that the rate cut was not enough.
(side note; our team didn’t think it was enough either!)
Throughout the month, we saw ups and downs due primarily to headlines regarding the Trade War with China, the global economy, and our President’s tweets. Yet, what are we really watching, what does the data say, and how do we make decisions?
This is why we chose a rules-based investment system year ago, for times like this. We do not want to be driven by our emotion and least of all by greed. These could lead us to run scared when we should hold tight or hold on to long trying to make too much.
Therefore, this is what the data is telling us:
Market Sentiment is negative and in a downward trend.
Valuations are negative due to high valuations historically, meaning historically the stock market is expensive.
Economic Activity is negative due to a slowing economy. The leading-economic-indicators are negative. This shows a slowing economy, but not necessarily a contracting economy.
Federal Reserve Activity is positive due to their recent rate cut and future expected rate cuts.
As for our over modeling (investment accounts), these have held up well this month. For a comparison of how your account has done, please call your Sound Financial Advisor. At the writing of this report, we expect our many of our accounts to trade to a “risk-off” position due to our credit spread signal. This is a core component of our rules-based models and is now signaling for us to move accounts more conservative.
Admittedly the tough part of a rules-based modeling is following your rules without following your emotions. At times like these, anyone’s emotions get go all-over due to headlines and personal desires. This is why we built, tested, and implemented the rules, so that you can have the best models possible for your stage of life.
We appreciate the trust that you put in us!
Posted on Wed, August 28, 2019
by Sound Financial