The Big Picture

“I know you think you understand what you thought I said, but I’m not sure you realize what you heard is not what I meant…” 

The above quote was apparently misattributed to former Federal Reserve Chair Alan Greenspan. Per Ralph Keyes of the Quote Verifier; “this popular tongue twister gets attributed to the obfuscator du jour.” For someone who pays close attention to the Fed’s ramblings, obfuscation from the Fed is not much of a surprise. Fed members have emitted some doozies over the years. Recently the Fed indicated they may be changing course in their plans to continue to raise interest rates. We will know shortly!

October and November have not been the best months for the markets. During periods of uncertainty we see market corrections and wilder swings in market prices. At present, there are a handful of questions investors are not quite sure of. After the market correction in February this year quickly wiped out the year’s gains; it took seven months to recover. In just a few short weeks the correction that began in October has yet again wiped out the year’s gains. The message is much simpler than it may seem. No obfuscating: growth is slowing and the market is pricing in new expectations.

Have a Plan and a Process!

From the Trenches

“The market always does what it’s supposed to do only never when it’s supposed to do it!” 

What is a correction? 

The “textbook” definition in the investment world is a decline of more than 10%. Corrections are caused by a variety of factors or events. Whether it is news related, or changing expectations, corrections are a normal part of the market. There is no way to avoid periodic corrections nor would we recommend attempting to. A certain amount of volatility is to be expected. The more aggressive the investment strategy, the likely the more volatility experienced.

The below chart shows every material correction for this market cycle including the current correction. While never fun, as you can see corrections are a normal occurrence from time to time. 

Bottom line: Corrections are normal market events and generally unavoidable. The key is to have a plan and a process should the correction turn into something worse. 

The Weeds

“Short-term volatility is greatest at turning points and diminishes as the trend becomes established.” -George Soros

Above is regurgitated from earlier this year. Is the recent short term volatility marking a change in the trend? At present is certainly appears so.

The Economic & Market Cycle

Market prices reflect expectations on growth. When expectations are high we see strong price growth and low volatility. When expectations wane we see price growth slow or stall and we see volatility increase. These two together generally cause corrections in market prices.

Is it trade war concerns, political concerns, or is it the Fed changing policy? The truth is all have an effect to one degree or another. The economy is driven by aggregate data. The bottom line is the aggregate data is showing signs of slowing in the economy. This does not mean we are looking at a recession, it simply means the expectations on the pace of growth are coming down; Along with continued concerns over the global economy going into the New Year.

Following the cycle. Growth Slowing or decelerating equates to risks rising. #2 Area below.

Bottom Line: Should the slowing we are witnessing become worse it may be critical to review and assess market positioning. Protecting assets is just as important, if not more important, than growing assets!