Last week’s “Technically Speaking” covered the first part of the bull and bear market case as we head into the end of the year. As we noted, investors face a conundrum between year-end seasonality and the Fed starting to taper its bond-buying program.
I received lots of comments about the article from individuals pointing out their perspectives on the market. In addition, there were enough excellent comments to derive a follow-up to last week’s post.
The dichotomy of views is broad. Numerous articles recently discussed how the bull rally would emulate that of the 1920s. Others discuss the biggest crash ever is coming. The problem is wading through the noise to discern the underlying risk at any given point.
It’s challenging to do. Such is why so many advisors charge clients a fee for “buy and hold” strategies. Since there is a lack of knowledge or experience to manage risk, they tell clients they can’t do any better than deal with the eventual losses.
That isn’t investing. That is a capitulation to laziness, a lack of research, and a lack of defined investment discipline and strategy. While such approaches seem to work while markets are rising, financial goals get permanently destroyed when markets eventually decline.
If such was not the case, then why, after two of the largest bull markets in history, are 80% of Americans woefully unprepared for retirement?
While the promise of a continued bull market is very enticing, it is essential to remember that all markets ultimately complete a “full cycle.” Therefore, if your portfolio, and eventually your retirement, depends on the thesis of an indefinite bull market, you should at least consider the following charts.
The Bullish Case
Despite the recent correction in the market, bullish sentiment has quickly returned to the market. As a result, the CNN Fear & Greed Index is back to “greed” levels after the latest rally. However, the index gets heavily influenced by the movement of the market.
Our “Fear/Greed” index gets based on how investors allocate to the market without any influence from market price changes. While our index declined with the recent correction, investors have quickly piled into equity risk over the last week.
What is clear, judging by the surge in SPACs like Digital Media (DWAC) last week, investors have been quick to jump back into some of the most speculative assets recently without regard to the underlying risk. But, of course, such is also a sign of a high degree of “complacency.”