 Earthquake, tsunami, possible nuclear fallout and U.S. involvement in a new conflict in the Middle East! All this in the midst of a global economic recovery; sounds like dire times. Yet our stock market continues to climb, posting positive numbers year to date. The S&P 500 is up 5.5%, Dow Jones up 6.7% and the Nasdaq is up 4.5%. The stock market serves as a "leading" economic indicator and this would lead us to believe that our economy is growing and becoming "healthy" again. Time will tell. At Volt, we believe that understanding how market cycles affect portfolio performance is a critical component for success when investing our client's capital. Since 2000, the markets have been in what we refer to as a "secular bear market". This is defined as a grand, long-term market trend that is sideways or down over the period of time. Many don't realize that the S&P 500 has produced over a -6% total return since the beginning of 2000. This is typical of a "secular bear" environment and the last one prior to the current was from 1966-1982 which produced a flat return during the period. Between then and now (1982-2000) we experienced the strongest "secular bull" environment on record which many investors are still hoping will return; 11 years into the current market environment. Unfortunately, they may be waiting a while longer. What keeps investors hopes up during a "secular bear" trend is the shorter term, "cyclical cycles" that occur within the grander trend. These cycles typically last 2-5 years and have a bull and bear phase to them. These are great opportunities to make money! In an overshadowing, "secular bear" environment, it is important to be nimble and protect capital during the bear phase of the cyclical cycle. Many investors experienced pain during the two recent bear markets in 2008 and 2000 by maintaining strategies that work in "secular bull" environments but not in "secular bears"; AKA, buy and hold. The bull phase of these cyclical cycles lure investors into feeling good again as they see their portfolios begin to rise toward the levels they were at prior to the previous bear phase. Then, like in 2008, they get crushed again and the cycle starts over. At Volt we don't believe in sitting around for 11 years without any portfolio return and our strategies seek to make money during the bull phases of the cyclical cycles and protect capital when the bear phases occur. Currently, we believe we are in the final, or second leg, of the cyclical bull phase that began in 2009. With that said, the trend as of today is still up, and as asset managers, the rule of thumb is to stick to the trend until it changes. However, we believe it is still a time to be cautious as we know these second legs are typically shorter, more volatile and will eventually turn negative. If you would like to explore how our strategies can help you during the "secular bear" we are in, please contact us to learn how we can limit your market exposure while positioning you to outperform it! The opinions are strictly those of the author(s) and are provided for informational purposes only. No investment should be made as a result of this article without your personal due diligence and research, and with the counsel of an investment professional. |
