Here is a quick market commentary for March 5 2015. More than anything else, we focus our efforts on:
How to properly manage the risk in your investments.
With that in mind, there are two noteworthy points that came up this week.
This past week (March 2, 2015), the NASDAQ Index closed above 5000. The last time this happened was 15 years ago. For those who did not live through that precious moment in time, from 1998 through 2002 (five short years), the NASDAQ Index ran from 1500, up over 5000, and BACK down to 1300. The NASDAQ went “all one way” for while, then went “all one way” for a while more.
If you want to see a “bubble” in action, fasten your seat belts:
Quick trip down the NASDAQ Memory Lane
January 1998: 1500
January 1999: 2100
January 2000: 4100
March 2000: 5100
May 2000: 3300 — and the chart broke support dating back to 1992
September 2000: 4200 — a brief recovery, then:
October 2000: 3600 broke newer support
December 2000: 2300 — down 50% in nine months
And finally the five year round trip came to rest:
October 2002: 1300
We know from the charts: when an asset class, a group, a sector — or even a stock — falls out favor, there IS NO BOTTOM. And NASDAQ investors learned that lesson the hard way back then. Learning how to manage the risk is a full-time job, not something someone can do part-time or on weekends.
As an advisor, watching your investments get dragged down into the dirt — for years — because an investor wants to be “long-term” is not really a game plan for managing risk. At some point even Warren Buffett sells the losers. Individual investors should consider that too. If you truly want to manage risk in your investments, you cannot simply buy and hold forever.
At the end of February 2015 and heading into March, we continue to push our chips across the table (investing), because our indicator lights are all green — but that does not last forever. And this is where we can really better manage the risk in our investments. We will get clear signals from our indicators when to get more conservative. Even if our short-term indicators indicate a possible stall or pull-back, looking at the intermediate and longer-term view we still appear fine.
Right now, we’re seeing small cap stocks making a move. Regardless of whether you hold small, mid-cap or large cap, US stocks remain the place to be. As an investor, if you are diversifying AWAY from the US markets, you are making a mistake. The strongest sectors continue to be healthcare, transportation, consumer stocks and biotechnology.
Yellen and Bernanke have been the most transparent Fed Chairs we’ve EVER had, period. Whenever the Fed does decide to raise rates, it won’t be a surprise. Here is something important to keep in mind: Yellen has mentioned a desire to avoid upsetting markets when rates rise. Yellen also has an eye on how to manage the risk in the markets. See pages 17-18 of the Fed Minutes: http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20150128.pdf
How does this impact you and I? Well, I have written more about that, here: https://mullooly.net/federal-reserve-preparing-to-raise-interest-rates/7977
Remember, it does not matter WHEN the Fed raises rates.
It’s how the market reacts to that news, that will truly matter.