What You Should Know about the Recent Volatility in the Markets
December 7th, 2018
A few points to keep in mind to put this recent volatility in perspective. The economy is healthy, the yield curve is not really inverted.
-The Advance Decline Line is a much better indicator of health of the overall markets than any major indices. It’s healthy right now.
-We have followed the Technical Analyst and Chief Investment Strategist Jeffrey Saut of Raymond James for over 15 years, and he’s one of the best in our opinion. He believes the 10/29 bottom made on the S&P500 will hold. For Traders he issued a ‘sell signal’ on 10/2, he went back to a buy signal (again for traders) on or about 10/29 and has remained on buy for any dips in the market since.
-Recessions tend to start 26 months after the LEI (leading economic index) peaks-and the LEI is nowhere near peeking: Source: Brian Wesbury, Chief Economist, First Trust Portfolios.
“What about the inverted yield curve? I’ve heard this is a predictor of recession.” Only a small part of the curve has inverted between 3 year and 5 year treasury notes.
In short, not an area of concern, what matters most is the larger curve, from 3 month to 10 years and it is not close to inverting. Furthermore, inverted yield curves do not cause a recession, but tend to be a symptom of recession caused by the Federal Reserve raising rates too aggressively. Fed Chairman Powell has already signaled rates are close to neutral, and consensus is only one more rate increase is coming. That’s not enough to invert the larger curve.
Keeping what’s mentioned above in perspective, during these times of volatility it’s a great time for you and your Ashworth Sullivan Financial Advisor to look over your portfolio to prune companies and or funds whose fundamentals have deteriorated or where news cannot get any better. This process during downtimes liberates capital which can be deployed into higher quality names or funds which stand to go up faster during an upswing. This is also a good time to put idle cash to work.
Currently we favor adding money to diversified models (LAMP, SEI, or new TD models) and Oil/Energy.
For longer term investors, you have been educated to understand short term volatility is not significant in the longer term.
We appreciate your patience as we maintain a disciplined investment strategy through these times of volatility.
Marcus Ashworth, CFP®
Casey Sullivan, CFP®