The Overlooked Reason for the Current Market Volatility
After a relatively sanguine 18 months of bliss for investors, stock market volatility is back with a vengeance. There are several things concerning the market right now; rising interest rates, the possibility of a recession on the horizon, and most notably the new trade war with China.
However, there is one obvious culprit that gets no love or attention, and that is Pre-earnings Nap period.
I’ve written about this phenomenon many times in the past. The way it works is that for the last two weeks of the quarter and until earnings are released in mid-April, there is what is called an “Earnings Blackout Period”. During this period, public companies and their employees are prohibited from discussing anything about their company until they have released earnings. Sounds simple enough, right?
The problem lies in the 24 hour news cycle. With an absence of financial news to occupy investors, people turn to the headlines…and when was the last good news headline you remember seeing?
That’s right, our investment decisions start to get clouded by irrelevant events such as the battle with ISIS, the Russia probe, the wall with Mexico etc. In addition, although the trade war with China is certainly important, I have a sinking suspicion that it will not be so important once earnings begin to be released, starting with Alcoa on April 18th.
At that point, it all depends on earnings which have every indication of being well above expectations. This should set the stage for stocks to get back into rally phase and all the painful declines, overzealous gyrations, and massive market swings will be forgotten.
That’s not to say that it will be smooth sailing and you should throw caution to the wind. Absolutely not. We still have an aging economic expansion and subsequent bull market. The “Sell in May and walk away” could be a real threat this year. The fact is that if you are retired or getting close, you cannot take too much risk because you can’t make back your mistakes.
Now is the time to take a more comprehensive approach by putting a retirement master plan in place and sticking to it. This will help to make stock market volatility personally irrelevant.
It may be time to graduate a retirement advisor. They “should” understand how to prepare you for the different phases of life as you move from an accumulation investor to the preservation and distribution phase; and how to invest your hard-earned money to get the best returns with the least risk possible. This is what we do for our clients.
Feel free to contact me with any comments or questions.