A banking crisis, the debt ceiling, recessionary fears, and increasing global tensions are reasons investors are fearful. Yet you may have noticed that the US stock market has been acting kind of strange lately. So let’s talk about what is happening with the US stock market – specifically large cap stocks – many people think of the S&P 500.
Regardless of your model, we need to remind you that you only have a portion of your portfolio in the US market, consistent with the science behind investing and managing risk. A moderate portfolio has 12% in large-cap stock. Still, this is an important asset class, and you might be wondering what is going on, are we headed towards a bull market rally or is this a head fake – a bear market trap?
In sports, a head fake is when someone moves the head to fake an intended change in direction and thereby deceives opponents.
The term originated in sports, but it has become applied metaphorically to the financial markets, a head fake refers to a time when the market appears to be moving in one direction but ends up moving in the opposite direction. Market strategists are concerned about recent gains sparking the current bull-bear debate.
What is causing this concern? Valuations are high and the number of stocks driving gains is extremely low as mentioned, we have some economic challenges. If nothing else, we recommend caution. Three indices often used to monitor the market have had a significant divergence year-to-date, the QQQ is up 24%, the S&P 500 is up 8%, and the RSP is down -1%.
This conversation focuses on why emotions should not drive how you invest and why having a strategy is so important.