Welcome to the latest edition of our new feature, “Weekend Reading For Traders”. As we mentioned last week, the goal for this column isn’t to simply be just another “market update” that fills our inboxes on a daily basis, but rather a collection of articles that we’ve found to be of interest throughout the week… and that we hope will be to you as well. Of course, from time to time, we’ll highlight significant market developments as well.
Accordingly, we kick things off with an article covering this past week’s CPI report, which caught market players off guard (but probably wasn’t that surprising to anyone that pays rent or buys groceries). We then look at an interesting article discussing how investors might distinguish between a run-of-the-mill bear market bounce and a bonafide new bull market.
From there, we have an article that considers why making predictions is harmful to our portfolios, and another that looks at how the market has behaved during midterm years (notably, however, without making any predictions in the process!).
Finally, we wrap up with two interesting articles around time management… one which delves into a powerful tool to help us focus on the right task at the right time, and another which argues that being a good manager of our time takes more than just implementing a few life hacks.
And with that, we hope you enjoy this latest installment of Weekend Reading For Traders.
U.S. Inflation Remained High in August
(Gwynn Guilford | The Wall Street Journal)
After the senior indices hit their last high on Jan 4 and the current bear market began, there have been a handful of counter-trend moves. Most notable was the one that began in June, when the market was exceedingly oversold and sentiment reached extreme levels of bearishness. However, what started out as an oversold bounce turned into something more, as the bullish narrative grew that inflation had peaked and that the Fed might be able to pivot away from their plan for aggressive rate hikes… even while each of the various Fed presidents was unified in their hawkish messaging. Chairman Powell dashed those hopes at the Jackson Hole conference at the end of August, yet investors seemingly refused to take Powell at his word when he reiterated his position that higher rates were still needed the previous week, as the S&P 500 jumped nearly 4% amid chatter that the August CPI report might come in far lower than expected. Unfortunately, that didn’t turn out to be the case, as the reading came in even hotter than expected, leading to the worst day for the market… this year. Stocks continued lower into the end of the week, with the S&P 500 falling once again below key support at 3900 as the yield curve’s inversion intensifies and bellwether companies lower (or even forego) forward estimates… suggesting once again that trying to fight the Fed remains a suboptimal approach.
How Do You Tell a Bear-Market Rally in Stocks From a New Bull Run?
(Sandy Ward | Morningstar)
It’s common knowledge that the biggest bounces occur in bear markets, and those bounces can result in some great opportunities for active investors with the right timeframes. However, the challenge that sizable bear market rallies present is that, as they continue to develop, it can get rather tempting at times to start thinking that maybe (just maybe) The Low is in. Of course, it often turns out to be the case that newly minted bulls get trapped as the market rolls back over. Which begs the question: Is there some way to tell the difference between a bear market bounce and the start of a new bull market? In this article, Ward suggests that investors can watch for certain technical indicators, including a new breadth thrust, where 90% of the common stocks on the New York Stock Exchange, the NYSE American, and Nasdaq are above their 10-day moving averages, the advance-decline line on the NYSE is around 2:1 for 10 or more days, and that over 55% of the stocks on the NYSE set new highs over a 20-day period. Meanwhile, another reversal indicator (not discussed in Ward’s article) is the powerful, albeit rare, Zweig Breadth Thrust Signal.
There Will Always Be Sorcerers
(Nick Maggiulli | Of Dollars And Data)
As the venerable American philosopher, Yogi Berra, once said, “It’s tough to make predictions, especially about the future.” Yet, soothsayers and fortunetellers have a long history of convincing other humans that they can, after all, see what the future holds. This is particularly true when it comes to investments, where prognosticators and gurus fill the airwaves (and our inboxes) with predictions about where the indices are heading next, where any given stock will be trading12 months from now, or how the market will react to an upcoming data point. However, as Maggiulli points out, a seven-year study of stock market gurus revealed that their predictions were accurate only 47% of the time… meaning that you’d have better results by flipping a coin. Ultimately, the key point is that, ignoring those who try to convince us that they know what going to happen next and embracing the futility of predictions gives us the freedom to act decisively as we get new information and react as the pricing action develops.
The Midterm Election Is Two Months Away. What Investors Need To Know
(Ryan Detrick | Carson Group)
Despite a confluence of negatives and a renewed sense that the market might not be quite done yet pricing in the full extent of the headwinds it’s facing, the reality is that weakness in midterm election years is unusual. In this article, Detrick points out that midterm years have corrected, on average, 17.1% since 1950, and that stocks have gained an average of 32.3% in the following 12 months after putting in a low. Meanwhile, markets have been historically weak in the second year under new presidents, and bottoms tend to occur later in the year. Ultimately, the key point is that the weak action so far this year isn’t without precedent, and while there are significant headwinds in play, we can at least be mentally prepared to react should the upcoming elections alleviate some uncertainty and possibly set the stage for some positive action in the coming months.
The Complete Guide To Time Blocking
(Laura Scroggs | todoist.com)
In a world of never-ending interruptions and distractions, it’s easy to find that, at the end of the day, week, or quarter, many of the things that we wanted to accomplish are left undone. Indeed, if we don’t actively claim the time to do those things that have the most impact on our lives (both professionally and personally), then chances are good that they simply won’t happen. Which is why time blocking can be remarkably helpful for those who need a tool to, as Scroggs puts it, “focus in a world designed to distract us.” At its core, time blocking asks us to first prioritize all the things we need to get done, divide our day’s schedule into blocks of time, and then assign those tasks to specific blocks on a calendar. Thus, instead of having an unstructured to-do list, we have a clear guide that tells us what we should be doing at any given time, helps prevent multitasking, and creates space not only for “deep work” but also compartmentalizes the “shallow work” we all still need to get to as well.
Time Management Is About More Than Life Hacks
(Erich C. Dierdorff | Harvard Business Review)
We all get the feeling from time to time that we should be doing more with our time, and (not unsurprisingly) there’s a plethora of content out there to peruse if we want to learn how we can “be more productive”. Unfortunately, most of that content revolves around the methodology of time management, but, as Dierdorff astutely points out, being a skillful manager of our time requires more than just implementing the “right” tool. In this article, Dierdorff explains that there are three key aspects of successful time management: awareness (being realistic about time), arrangement (prioritizing tasks and making schedules), and adaptation (making adjustments as interruptions occur and priorities change). As it turns out, most of us are pretty good at the arrangement stuff (which is what all the various time management tools and methods are focused on) but aren’t nearly as adept at the other two skills. Accordingly, Dierdorff suggests several strategies for better time management, including better assessing how we actually use our time, how we prefer to do our work, the time management skills that we really need to work on, creating contingency plans (for when our careful arrangement goes awry), scheduling “protected” time”, and treating our time like it’s money (among several other things). And by improving the other two key skill areas, we might find it easier to successfully implement that new tool or app that we thought might help in the first place!
