November (Market) Vibes
🚀 What’s happening: The S&P 500 has been on a tear the first 12 days of November, up 5.3%. This rebound follows an awful three months for the S&P 500 index— down 2.2% in October, down 4.9% in September, and down 1.8% in August (the index year to date is up 15.0% sitting at 4,415).
Why? Two reasons.
Interest rates. When investors are fearful of interest rates moving higher, stocks go down (interest rates act like gravity to virtually all assets including stocks). Even though the Fed chairman this past week noted they are still ready to raise interest rates further if needed, the market is betting they are done (and that interest rates will start coming down by May 2024).
Seasonality. Humans have behavior quirks that show up in the way we trade stocks too; since 1950, the best months for trading stocks tends to be the six month period from November through April. As such, we are right on queue.
Side note: there are a lot of theories for this, but we think one of the reasons is because investors just want to put past emotions behind them and look towards the next year with more optimism. Similar to the phenomenon of how many parents (and grandparents!) forget about all of those sleepless nights during the newborn phase… hope springs eternal.
So what happens next?
Anyone’s guess. But for our two cents, after the recent rally we think the next move will remain more rangebound as the market digests this move upward and waits for important economic data on the horizon (with the next big one being Consumer Price Index report on 11/14).
Even if the report is positive (meaning we see further progress on inflation easing), at a level of 4400-4500 the market starts to bump up against valuation hurdles, so we are more cautious that we might not get much more of a rise than where we are now.
👪 Closer to home: While it can be fun to predict these short term moves in the market, for the long term investor (which we and most families are) they are largely irrelevant.
For our own investments we tend to follow the old adage: “time in the market is much better than trying to time the market,” meaning that just investing a little bit consistently is the best way forward.
To try and trade the next move of the market, all of us as individual investors are at a huge disadvantage compared to large institutions that utilize a massive amount of (very expensive) data that typically provides them with more insight (which is actually our founder’s day job).
What the individual investor has that larger institutions don’t, is time; you see, if banks and hedge funds are losing money, they typically don’t wait and hold a stock, they sell it regardless of the outlook. That, is your advantage.
So stay the course, always know what you own, and remember that the best time to invest in the market is when everyone else is panicking.
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