The Big Picture

“Perception is more important than reality. If someone perceives something to be true, it is more important than if it is in fact true.” – Ivanka Trump

The above quote is from Ivanka Trump’s book “The Trump Card”. I have always cringed when I hear that perception is more important than reality. However, I understand this observation, or perception! This is a human nature trait from the recognition that we don’t see things as they are, we see them as we are.

Older woman looking down, or younger woman looking away?

I field perceptions often. My primary issue with the statement is in the investment business perceptions can get you into quite a bit of trouble. In the investment world; there is perception, and then there is reality!

Have a Plan and a Process!

From the Trenches

“I don’t believe in this market!” 

“This can’t go on any longer!” 

“This is all fake progress…” 

-A plethora of perceptions on this market cycle.

Recall we are apparently in the most hated bull market…

The above statements are the culmination of frustrations in a market cycle that is unprecedented in several ways. Not all of them good! I have found that perceptions on the financial markets primarily stem from the investor’s individual experiences with them. Followed by behavioral factors and biases that may be present. I can generally guess from the generation of client I am in front of their perceptions on the market.

Current perception seems to be that the market is doing very well.  Which of course adds to the frustrations for those not positioned to take advantage. Is the market really doing well? The market is at all time highs. That is nothing to sneeze at. How do investors define whether the market is doing well? Two ways: How they are positioned in the market as well as how the market has done recently! For the year-to-date, the S&P 500 is performing quite well. However, this performance was primarily making up for lost ground during the correction in the 4th quarter of last year. When taking another step back, until very recently the market has been volatile and sideways for nearly 19 months.

Below chart of S&P 500 from January 2018 through the present; currently up slightly over 4% from the market high set on January 26, 2018. Not a lot of green!

The market remains in a bullish trend, however that trend has weakened materially over the last year and a half.  We will see over the coming months whether the market will continue to rise to new highs. Or, more importantly, re-establish a strong bullish trend.

Bottom line: It is crucial not to let perceptions cloud the reality of the current market environment. Whether those perceptions are positive or negative is irrelevant, what is the reality!

The Weeds

Your perception may not be my reality.” – Aporva Kala

I like that one…

Market & Economic Update: Not good or bad, getting better or getting worse?

Getting worse. Over a year ago I discussed that our expectations were for growth to slow. We are witnessing earnings growth slowing materially from last year through the present. Earnings growth was eclipsing 25% year over year. Now we are facing the reality of declining earnings growth going into year end. This is one of many factors we are monitoring where slowing is evident.

Does the market recognize this? Yes.

This is one of the reasons for the range-bound prices witnessed in the chart above. The stock market is a forward looking mechanism. If the market is not appreciating, there is a reason! The last earnings recession (two quarters of declining earnings) was in 2015. This was also the last period of a stagnant market. This doesn’t necessarily mean an economic recession is imminent. However the probability for this outcome is rising.

This is how the markets and the economy should be assessed. They are not “good” or “bad”, they are getting better or getting worse. Along with this assessment a plan of action, or dare I say a process, should be employed. What is the process for positioning for slowing growth?

We have already begun the shift!
Bottom Line: Positioning allocations for the expected market environment is critical to risk management and preserving capital. Don’t wait for the obvious, as it will be too late! 


*Posts are written covering three primary topics: Macro, or the big picture; Investment Planning considerations; And the Markets – What is going on there?

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Past performance is no guarantee of future results. All investments involve risk and may lose value. There is no assurance that the objectives of any strategy will be achieved. No strategy can guarantee a profit or fully eliminate the risk of loss.

The S&P 500 is an unmanaged index which cannot be invested into directly. This index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. 

Investment advice offered through IFP Advisors, LLC, dba Independent Financial Partners (IFP), a Registered Investment Adviser.