It can always get worse

Usually, volatility as a descriptor or roller coaster ride are used to describe declines in stock averages.  Proving that declines happen faster than increases and the pain of losing value is twice as great as the satisfaction of gains.  We are living in this world.  After last week's huge declines including into the close of the market day indicate more to come.  Every newspaper and publication had a headline similar to “what to do now with your portfolio”.  The essence of each recommendation was do not sell!  This too shall pass.  When the severe declines are happening, it feels like the declines will happen forever.  When the market averages go higher it also feels like it will happen forever.  We are convinced that whatever is happening now will continue forever and it never does.  Human nature and our tendency to make decisions emotionally often lead to decisions we regret later. Take a look at some of the links included in this newsletter to see what finance columnists are saying.  

Besides the stock market we have other assets such as bonds and the US dollar.  The safety of bonds has returned.  Normally when stock declines bond values increase as investors seek safety.  However, the usual movement of the dollar and currencies in general is a bit unusual.  Tariffs typically strengthen the currency of the country invoking tariffs. Currently the opposite is happening with the US dollar, at least this past week.  We shall see if that continues.  The reason, as far as analysts are concerned, is concern that we are heading for a recession.  Last week both Goldman Sachs and JP Morgan raised their odds for a recession.  Goldman from 25% to 35% and JP Morgan to 60%.  

There are sentiment/fear indicators that I use to gauge how bad investors are feeling.  Actually, the more fear felt generally means we are close to the bottom.  The problem is, as stated above, it can always get worse, and it always feels like it will get worse.  The indicators to look at are the CNN fear index https://www.cnn.com/markets/fear-and-greed, the American Association of Individual Investors sentiment index AAII Investor Sentiment Survey, and the Volatility Index CBOE Volatility Index (^VIX) Stock Price, News, Quote & History - Yahoo Finance.  All of these indicators are contrary indicators.  The closer we are to the more fearful, more bearish and higher they are, the more likely we are close to a bottom-except it never feels like it.  Stick with us and we shall help you get through this.

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