Have you ever been to a concert and the band seemed to get louder as the concert progressed? The current market environment is surrounded by noise and it is getting louder by the day and event. Greece, the Federal Reserve, crude oil prices, interest rates, international bonds, economic data, and yes, even politics over the 2016 presidential race… enough already. Can we have a little quite in here? I was speaking with an investor today about generating income during retirement and the conversation was like playing an old pinball machine with the big bumpers and flippers used to keep the ball in play as it bounces around the board and magically rings up points on the scoreboard. We went from bonds to stocks to REITs to MLPs to annuities and the topic of commodities futures were even hit upon. I needed and antacid and some aspirin for my headache caused by the world wind tour of the investment universe. Throw in all the issues about and the potential impact of each event above on the various assets classes, and you have the making of migraine headache. Near the end of the conversation, it was the end because of what I said, can we stick to what the specific objective is, and define a manageable strategy that can be implemented and managed over time? It doesn’t matter what happens in Greece… until it does. It doesn’t matter where interest rates go… until the move. The point is simple… we cannot foretell the future. We can define strategies that help us manage our money and adjusts for inside and outside market events that are news driven and those that are sustainable trends. If that is our approach the rest is nothing more than NOISE! There is too much noise in investing and as an investor I prefer peace and quiet. All of that said, stay focused on what you are doing and why you are doing it. Buy a set of Boise Noise Canceling Headsets and listen the Beethoven’s Symphony No. 5.
Today was one of those days where the uncertainty about the future allowed the noise to rule the direction. The downside start to the day was canceled as buyers stepped in to add money to what some considered bargains while others we unloading what they deemed to be overvalued stocks. In the end the buyers led the direction with all the major indexes posting gains on the day. This erased the downside of Monday and left us with nothing to show for our two days of trading other than a headache from the noise. No clarity + no direction = sideways movement with modest volatility. If we added fear or speculation to the equation the markets would move higher or lower depending on the driver of the day.
The activity today puts the bottom reversal trade back on the table following the move from last week. The challenge is without conviction, clarity or direction we can not be convinced the move is sustainable… beside the FOMC meeting concludes tomorrow and it will only add to the banter and noise based on what is said, how it is said and what the statement from the Fed says or is interpreted to say. That sounds like a conversation with one of my children. Bottom line let the Fed announcement get out of the way and then we will focus on what transpires in the wake of the news.
Last, but not least is the leadership or lack thereof. Financials, technology, consumer discretionary, healthcare and small caps have all taken a shot at leading the indexes higher, but each has failed to maintain the lead or give inspiration it can lead going forward. For this reason alone I have to remain patient and let this unfold. A market without leadership is fragile and the risk is elevated from my view. That does not make me right and I may well miss out on some opportunities near term… but, I will be peaceful and quiet in doing so versus running around without direction and chasing every announcement or speculation about opportunities. It is simple… go all in when the trends and directional clarity is in your favor and watch when the opposite is true. This is a good time to watch, plot, plan and exercise patience. When the trends become established and the leadership defined then we take on risk that is measurable and definable within our risk tolerance. We continue to take it one day at a time… plain and simple.