September 12, 2024
Good morning,
September, the worst performing month of the year for equities, got off to a rough start last week. Financial news services marched out the perma-bears, and “recession” in internet searches reached a new reaction high. Just when everyone knows the market is going to fall, the market does what it does best – it surprises. So far this week, the major equity indices have recaptured half of last week’s losses and are looking up again this morning in pre-market trading. Volatility remains elevated, as witnessed in yesterday’s post-CPI price action. It was an almost 3% turnaround in the S&P, which may not have been extraordinary, but it was certainly remarkable, with stocks and bonds putting in a series of dramatic U-turns over the course of the day.
Volatility represents investor uncertainty, and there is plenty of that in markets today. The bond market is discounting a recession, and the stock market seems to be discounting no slowdown in the economy ahead. One of those two markets is going to be right. Another example of diametric opposition of expectations ahead is the two independent research firms I subscribe to and have talked about often in these morning notes: Ned Davis Research and BCA Research. Today, NDR expects a September pullback followed by the resumption of a bull market and remains overweight equities in their model portfolio. On the other hand, BCA has shifted their equity allocation recommendation to underweight (in July) in anticipation of a recession developing in the months ahead. One of them is going to be right.
At times like these, where diametric opposition seems abundant, as a manager of risk, I think it’s prudent to take less risk around investment decisions. The next few months are going to be very interesting.
Be well,
Mike
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