Stock Market Undercurrents: Why We Have a Rules Based Approach

by | Jul 7, 2021 | Blog, Videos

Things are always happening under the surface of the stock market, even with the major indices continuing to march higher.

In this week’s video, Casey breakdowns a recent Wall Street Journal article that discusses how stocks, broadly speaking, have been pretty quiet for the last few months.

He highlights why it’s important, in times like these, to have a systematic rules-based approach to investing.

Show Notes

The Stock Market Hasn’t Been This Placid in Years – Wall Street Journal

https://tpmullooly.wistia.com/medias/8qhrqrln2v?embedType=async&videoFoam=true&videoWidth=640

Stock Market Undercurrents: Why We Have a Rules Based Approach – Transcript

Casey Mullooly: In Episode 253, is this the calm before the storm?

Casey Mullooly: Welcome to the Mullooly Asset Show. I’m your host again, Casey Mullooly, taking over the Mullooly Asset content pages. I’m enjoying it so far. Thanks for tuning in. So recent headline from the Wall Street Journal says that the stock market hasn’t been this placid in years.

It goes on to say that the S and P 500 hasn’t experienced a 5% drawdown since October of 2020. And historically speaking, we experience a five to 10% correction once or twice per year on average dating back to 1920. So what’s going on? The author offers that it could be due to what he calls T.I.N.A., which is there is no alternative, pretty clever. There is no alternative meaning that with the current interest rate environment with rates at or near zero, you have to be in stocks in order to get some sort of return on your money.

Casey Mullooly: The author goes on to state that the biggest threat to the current stock market is the Federal Reserve raising rates. So let’s talk about that. In 2013, there was something that’s called the Taper Tantrum, which is when the Fed, the first time they did QE during the financial crisis, signaled that they were going to end their bond purchasing program therefore rates would go up and the market puked at the news. But, if you step out and widen the lens and take it in context, the S and P 500 in 2013 was up almost 30%.

So look, we’re not going to get into reading any more tea leaves from the Fed or trying to skate where the puck is going. We have a systematic approach here to how we invest our money and when our indicators change, we’re going to change as well.

Casey Mullooly: The article also goes on to say that there’s been some big changes going on under the surface of the market. He specifically references the value versus growth debate and how these beaten down stocks during the pandemic has what, what led the way back up during January and up through May. But over the last month or six week, we’ve seen the growth more techie names come back into leadership.

So things are always going to be happening under the surface of the market. Markets change, that’s what they do. There will always be headlines. There will always be things going on. But the point is, that we have a systematic approach and we don’t get caught up in the news headlines and neither should you. If you’re trying to time when the Fed is going to raise rates and how the market is going to digest all of that information, best of luck to you. That’s something that we’re not interested in here.

Casey Mullooly: Like we always say, “We can know what the news is going to be, but we don’t know how the market is going to react.” I know that it might seem like we’re beating a dead horse with this, but it is so crucial to understand that message. So, yes, the stock market has been calm on the surface. Things are happening underneath. We’re on the ball and that’s the message for Episode 253. Hope you’ve been enjoying my appearances on the videos and podcasts so far. I know I’ve been and I’m looking forward to doing more of them in the future. We’ll see you then.

For a downloadable PDF version of this transcript, click here!