Most of the markets have hit the all-time highs we had been looking for and have begun a correction. We have talked about the typical signs of aging in a bull market in previous commentaries and some of these signs are beginning to emerge. At this point, from a portfolio management standpoint, the market must direct us, investment by investment. What we mean by this is not all stocks fall into bear markets at the same time. Gary remembers from his time at Merrill Lynch in early 2000 there was a technical analyst he listened to on the midday call. Each broker had a “squawk box” that you could hear reports from different analysts from around the country at different times of the day on (hence the segment on CNBC called Squawk Box). Phil Rettew was one of the best technical analysts in the firm so when he came on Gary made sure to listen. He described the process of a market top like a party, not all guests leave at the same time, some early, some late and some very late. The early ones leave quietly, usually because they aren’t well known. The last ones to leave are the life of the party, loud and boisterous, and when they leave it is a big event. It is a humorous analogy, but it rings very true. As this process of the down-turning market unfolds, we will keep this in mind.
We haven’t mentioned interest rates in a while so we will do so now. We mentioned that the 10- and 30-year treasury yield have been declining in a major downtrend since September of 1981. When the market sold off at the beginning of 2018, the yields on these bonds broke that down trendline and started to move above it. But as we mentioned in the previous paragraph, things don’t usually turn around right away, especially when you are talking about a 35-plus year trendline. Since that time, the yields have fallen back below the down trendline and the markets have rallied to new highs. This process of breaking above the line and then falling below can last a long time, even years so, we believe volatility will pick up as a result of this. It is all part of the market’s reaction to change, or even a threat of change, and it is something we will be aware of as we adjust portfolios to ride out any coming storms.
Gary and Dianne
This report is provided as a general market overview and should not be considered investment or tax advice or predictive of any future market performance.
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