Momentum in the market has shifted dramatically!

Momentum in the market has shifted dramatically!

This could be a stock market correction, or it could be the beginning of a bear market.  U.S. stocks are down 4-1/2 percent year over year.  Stock market losses in December were brutal and the market would have been down a lot more, but we had a bounce the last week in December.  The bounce was probably due to short sellers having to cover their positions in an oversold market.

There are many reasons for a deteriorating market:  Fed monetary tightening, slowdown in housing, slowing growth in China, threat of increasing tariffs with China, Brexit, increasing business and consumer debt, and so on.

However, what matters is not so much what is happening in the news, but how the market reacts to the news.  The Fed increased their rate from 2.25% to 2.50%, an increase of only 0.25% and an interest rate that is still very low.  However, after the Fed increased their rate in December, the Dow dropped 1000 points in a single day!  Due to how the market reacted to the news, I believe the market is speaking volumes about expectations for the economy in 2019 and 2020.

Relative momentum is highest with bonds now, indicating a flight to safety.

Dual momentum indicators follow:

Global Equities Momentum

Type ETF Year over year performance Price
Bonds AGG 0.09% $106.49
S&P 500 SPY -4.57% $249.92
International VEU -14.18% $45.58

(Closing prices as of 31 December 2018.)

At times like these, it is important to have a disciplined approach to investing.  Any successful approach to investing will have drawdowns from time to time.  The key is to keep those drawdowns to a minimum, and dual momentum historical drawdowns are significantly less than buy and hold.

The foregoing article expresses my opinions only and does not constitute financial advice.  You can take my opinions for what they are worth – my opinions.  Even though I work for Wells Fargo, I am not a trained financial professional and the foregoing does not constitute financial advice.  If you have any doubts as to the merits of a potential investment, you should seek the advice of a competent advisor.

(Photo by Gage Skidmore.)


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