Welcome to the latest edition of “Weekend Reading For Traders”. We kick things off this week by discussing the FOMC interest rate decision this past week as well as the market’s reaction to what Chairman Powell had to say in his press conference.
From there, we highlight a couple of articles around certainty. One which reminds us about the inevitability of cycles, and another which discusses the dangers of thinking that we will ever be able to accurately predict what the market might do over any timeframe.
And in a world of endless ways that we can fill our weeks, months, and years, we wrap up with a pair of articles about the power of learning how to say no more often.
And with that, we hope you enjoy this latest installment of Weekend Reading For Traders.
(Heard Editors | The Wall Street Journal)
Over the past several months, there have been several key events relating to the Fed and the economic data that helps inform their decision-making, including the Jackson Hole conference, a handful of FOMC interest rate hikes, CPI and PCE inflation readings, and (of course) the non-farm payrolls readings. Stocks have seen mostly positive action heading into each of those events, with the narrative being that the strength was being driven by expectations that the Fed would hint that they would be at least a little less hawkish… despite the fact that not only have the Fed presidents reiterated again and again that their sole focus at this point is squashing inflation, but that there’s been very little data to suggest that inflation is cooling rapidly enough for them to at least loosen their chokehold on the economy. Which, of course, leads us to this past week’s FOMC decision. With the S&P 500 bouncing nearly 8% following last month’s massive hammer off fresh lows and the Dow adding over 12% (retaking its key 200-day moving average), the initial reaction to the FOMC statement was positive, as market players keyed in on language noting that, “In determining the pace of future increases … the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” However, while Chairman Powell did acknowledge in his press conference that the pace of rate increases may slow, he emphasized that the thing that markets should pay attention to is the fact that, “incoming data since our last meeting suggests the ultimate level of interest rates will be higher than previously expected.” The net result was a sharp sell-off and downside follow-through the next day. The big question, of course, is if the indices can find their footing, or if the support zones from the June and October lows are in play again. Time will tell, but as we’ve been pointing out, although we’re heading into the most seasonally positive time of the year (and election cycle), the primary trend remains down and the market has a lot of work to do before we increase timeframes and risk tolerance.
(Ben Carlson | A Wealth of Common Sense)
There aren’t many things in life that we can be certain about, but there are a few constants that we can rely on to help us as we make decisions. One great constant is that market moves in cycles. There will always be both bull and bear phases, and while that’s pretty obvious to even the newest of investors, it can be a challenge for even seasoned traders to truly appreciate that fact at times At the height of a bull cycle, it can seem like the market will never go down again, and in the depths of a bear market, it can feel as if the constant pressure will never end. The reality, however, is that the page will turn once again, and the good news is that the real opportunities for true wealth creation are born in bear markets. And while we’ll only ever be able to know after the fact when the primary trend changes, the key to long-term success is understanding that successful investors are always cultivating a mindset to be ready to shift quickly as conditions change and have a plan in place to execute when that (inevitably) happens.
(Jason Zweig | The Wall Street Journal)
Although we’d love to have the opportunity to discuss the merits of active investing with Mr. Zweig, who advocates for a passive approach using low-cost index funds, one thing that we both agree on is the uselessness (and futility) of market predictions… as well as those who are in the business of making and promoting said predictions. In this article, Zweig reminds readers of a number of things that market players have been “certain” about in recent months and years and observes that the pricing action doesn’t always play out in the same way that they’d expect. And even if you had foreknowledge of important market-moving news ahead of time, unpredictable market reactions would make it difficult to capitalize on that information more often than not… unless, of course, you embrace the George Costanza approach to decision-making. The key point is that investors should always be wary of ever being “certain” about anything in the market, and instead embrace the fact that we can’t predict the future and use that to our advantage as we take our cues from the pricing action.
(Thomas Waschenfelder | Wealest)
Most people, when given the chance, would rather not disappoint others… especially when being asked to do something helpful. Unfortunately, we’re all constrained by the same number of hours in the day, which means that the more things we say ‘yes’ to, the more contained our schedule becomes, limiting our opportunity to concentrate our efforts on those things that are most important to us. Because, as the saying goes, when you say yes to one thing, you are implicitly saying ‘no’ to something. Which is why it’s important to embrace the fact that we are the only ones who should be deciding how we spend our most important resource… time. In this article, Waschenfelder examines various frameworks we can use to decide whether or not something we’re asked to do is worth our time and effort, including saying no to anything that doesn’t make us say “Hell Yes!”, pursuing only those opportunities that are within our “circle of confidence”, and defaulting to “no” if you have any shred of uncertainty about what you’re being asked to do. Ultimately, the key point is that by saying “no” more often, we’ll ensure that we can be available to take on those opportunities that can have the most impact on our lives and long-term success.
(Dr. Laurie Santos | The Science Of Wellbeing)
Speaking of saying “no”, it’s not news that we live in what feels like an increasingly hectic world where we can often feel guilty if we aren’t squeezing the most out of every hour of every day. Indeed, it’s all too common to realize on a Sunday evening that we haven’t sat still once all weekend long, much less taken the time to do something for ourselves. In this article, Santos discusses actively making doing less a priority and the virtues of making time to not actually do anything at all. Accordingly, she shares some tips for getting some downtime, including going to bed early, taking an hour for lunch and spending it talking to others, ending your working day on time, and getting out of the habit of picking up your phone every time you have a spare moment. Ultimately, the key point is that, by taking time to rest and unwind, we’re making our physical and mental health a priority and will end up making the time that we are active all the more productive.