Written by Lance Roberts, Clarity Financial
Just remember, bull-runs are a one-way trip.
A trade-deal only undoes the immediate negative impacts to corporate profits and the economy. However, higher interest rates from the Fed and tariffs were in place long enough to negatively impact growth, consumption, and confidence.
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Furthermore, given the markets never reverted to any meaningful degree, higher prices combined with weaker earnings growth, has left the markets very overvalued, extended, and overbought from a historical perspective.
Lastly, investors are all-in already, so there is little “buying power” left to substantially drive markets higher outside of a short-term short-covering rally from any “trade deal.”
“Cash is low, meaning households are fairly fully invested.” – Ned Davis
In other words, the “pent up” demand for equities is no longer available to the magnitude that existed following the financial crisis, which supported the 300% rise in asset prices.
Most likely, if a deal is done, whatever rally comes will likely be the last leg of the bull market.
The global economy is slowing, negative rates are proliferating within sovereign debt, and there is not an inconsequential chance of a credit-related event in the months ahead. Jim Bianco showed a long-term perspective that when global rates are lower than U.S. rates, a recession has always occurred.
It is easy to get wrapped up in the bullish narrative, it is worth remembering that making up a loss of capital is not actually an investment strategy.
While the media, and bulk of the financial commentary continue to suggest “riding the bull,” they are not going to tell you when to get off. Moreover, when the ride does come to an end, the media will ask first “why no one saw it coming?”
Then they will ask “why YOU did not see it coming when it so obvious.”
In the end, being right, or wrong, does not affect the media. They don’t manage your money. Nor are they held responsible for consistently poor advice. However, being right, or wrong, has a very big impact on you.
Let me repeat:
“While our portfolios remain long currently, we do so with hedges and stops in place, a thorough methodology of analysis, and a strict investment discipline we follow to mitigate the risk of long-biased exposure. In other words, whenever the market does turn, we will sell and move to cash.”
If you are going to “ride this bull,” make sure you do it with a strategy in place for when, not if, you get thrown.
If you need help or have questions, we are always glad to help. Just email me.
See you next week.
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