The perils of market watching

The purpose of this article is to warn people about the perils of market watching. In fact, I’m probably guilty of excessive market-watching myself. I have talked about the markets on a regular basis in recent months. But it must be done, for various reasons, while acknowledging the hazards involved.

The reason some market watching must be done is because the phenomenon very much has an impact on all of us. If the markets go down, as they have been in recent weeks and months, the bad news becomes a self-fulfilling prophecy, the markets tumble further, which has a very real impact, not only on current securities valuations, but current outlooks, as well as future investment decisions.

No shortage of bad news

So, if you were to look at the current state of the markets, you might think things are bad, are only going to get worse, and we’re walking right into a recession. That’s why one has to do more than market watch. There are other factors to keep in mind, too.

For example, despite all the recent bad market news — such as Fed interest-rake hikes, bad December stock-market performances, doom-and-gloom economic reports — there is in fact some good news; namely, the U.S. jobs market is still red hot and expected to continue, at least for the near future. A strong jobs market is medicine that can prevent the sickness of a recession. Remember, a recession will occur. We just don’t know when. And it might not be right around the corner, as so many are speculating.

Playing the long game

Which also brings up another point I’ve been trying to emphasize on these pages. The market will go up. It will go down. We will have a recession — at some point — we will have a recovery from a recession — at some point. These are all part of the natural cycle of financial activity and investing.

But we need to keep in mind two things. First, don’t panic. A recession will eventually happen, and nobody knows exactly when. Second, a long-term approach to investing means taking into account multiple recessions over multiple years as part of the natural cycle of the markets. If your long-term approach is sound, then the short-term news cycle is just noise.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.


As the investment world turns

There has been no shortage of discussion on these pages about the short-term fluctuating nature of the financial markets, especially in the Trump era. Well, it’s happening again, only this time, well, take a look for yourself:

Now, much of the discussion here has been about how events usually get overblown and the market and economy keep growing. However, in this case, some of the negative sentiment appears to be somewhat more persistent than usual.

Another look at the numbers

Since October 3, the Dow Jones Industrial Average has gone from a high of almost 27,000 to a current level of about 24,600, which is a drop of about 8.2%.

So, things are looking pretty bad, right?

Maybe not so much.

First, let’s take a look at the three month chart. If you notice, even though the last two months have seen some precipitous drops in the Dow average, they have also been accompanied by some steep rises, too.

Now, let’s take a look at the one-year chart. Notice something? There’s been a consistent up and down to the stock market all year. This is not new.

Let’s take a look at the three-year chart. Guess what? All the fluctuations we’ve been seeing in the last two months, and even the last year, come at the tail end of three years of growth. So, even with all the recent turbulence, we’re still way ahead of where we were at the beginning of this ride, aren’t we.

Fluctuations come and go

Finally, let’s look at today’s chart as I’m writing this. Despite the headline you see above, current trading is much higher than opening trading, even though a huge dip occurred near noon, and then bounced right back.


So, the lesson? Again, it’s about taking a deep breath and looking at long-term trends. Traders are currently panicking because they’re unsure about Trump’s “truce” with China and because conventional wisdom says a recession has to come at some point.

But, here’s the thing. We don’t know when. Nobody does. And, in the meantime, short-term fluctuations shouldn’t distract investors from long-term fundamentals that deliver capital growth over time.

UPDATE: Here’s the same one-day trading chart, except after closing. The index closed well up from opening trading, and only slightly down from the previous day’s closing level. Thus, proving, once again, that when the market goes down, it goes back up again. Drudge had to change his headline a few times this afternoon.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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