Mid-December Market Update

As you may know, we publish a monthly “Market Commentary” in our Blog.  You will find our “November 2018 Market Commentary” there; as well as, a blog from earlier this week entitled, “Money Talks:  Markets Got You Dizzy?”.               

In that latest piece, we discuss the psychological side of investing.  If you have lived through a few market cycles, you’ve seen how short-term markets can be driven by human emotion. There is a reason that the Volatility Index is commonly referred to as the “fear index”—panic usually causes a retreat. But for every seller, there must be a buyer. Which means that someone out there is betting that the price is going higher.

One of the key points in the blog is from a Nobel Prize winning study which determined that people experience two times the emotional impact of losing something than they do the impact of gaining something.

Therefore, when the market goes down, the average investor feels an emotion two times stronger than he experiences when he gains the same amount.

If you’ve ever done a trust fall, you know that sensation before you decide fall into the waiting arms of your peers.  You can see them there, and you know they’re going to catch you. But the potential terror of not being caught still clouds the logic right in front of your eyes. You still have to force yourself to take the plunge.

Navigating a volatile market often feels the same. It’s difficult to sift through nonstop commentary and the emotional impact. But long-term markets aren’t driven by emotion.  They are driven by human progress… the spirit inside all of us that wants to improve our lives, our communities, and our world.  And that long-term outlook combined with experience and principles is what guides great investors through volatile markets.

At Arkos, our investment philosophy is called “The Three Dials”.  Our Senior Analyst, Ethan Pollard, has written a series of “Deep Dive” articles on our website about our approach.  The primary benefit of our philosophy is that it takes the emotion out of the investment process.  It is our primary tool in our quest to maximize returns and minimize losses.  Here’s the mid-December update on each of The Three Dials:

1. Economic Fundamentals: Positive (unchanged from last month)

Market participants have been spooked by the Fed’s persistence in raising interest rates, causing stocks to break recent support levels. For now, stocks are in a clear downtrend, which has turned our Momentum Dial to “Negative” for the time being.

Stock declines have brought valuation to a more moderate level, though still expensive by historical standards. Perhaps this reduced valuation will attract new buyers, but for now our Valuation Dial remains in a “Negative” position.

On a composite basis, The Three Dials are currently showing a “Moderately Bearish” reading as it pertains to the overall risk of the market.

Our advice is to enjoy the Christmas season and rest-assured that we are keeping a close eye on the markets and our indicators.  Your ARKOS team will keep you posted on our recommended changes.

Thanks again for your trust as we enter 2019!

Your Archetype Team

Sources:

Federal Reserve Bank of Atlanta (2018, December 21).  Atlanta Fed GDPNow Estimate for 2018: Q4. Retrieved from https://www.frbatlanta.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf