One of the hardest emotions for many investors to overcome is FOMO.
The “Fear of Missing Out” forces many investors to take trades that they shouldn’t.
This is why at Avalon, we prefer to use rules-based, systematic approaches to investing, as it helps to minimize making emotional decisions that often lead to mistakes.
Despite last Friday’s rally, the market ended lower for the week on comments from Fed Chair Jerome Powell that a pivot to cutting rates may not come as quickly as many had hoped.
Then Friday’s stronger-than-expected payroll numbers sent Treasuries tumbling and rates higher.
Technically, the 129 level is an important level to watch on the long treasury futures as a breach of that level will probably bring with it an acceleration in declining price (and a rise in interest rates).
Unease around the budget debt ceiling is also adding to sentiment after Janet Yellen notified congressional leaders that the Treasury may not be able to meet its obligations as early as June 1.
Tech stocks have managed to keep the stock market rally in play, but that may be getting increasingly difficult.
The fact is, the current market leaders are facing an increasingly challenging environment as the global economy slows.
Take for example Apple.
Despite the positive reaction to Apple’s better-than-expected earnings, the facts remain that Apple’s revenue fell by 3% and free cash flow fell by 20%.
Another sign of trouble was the increase in inventories which grew by 37%.
Apple currently accounts for 7.3% of the S&P 500, the largest weight for a single stock in the index since 1980.
Elsewhere within the technology sector, it’s important to note that the semiconductors, often viewed as a bellwether for tech in general, have recently fallen from #1 in Relative Strength to a recent low of #43.
Samsung reported that profits fell by 95% as the chip division reported a $3.4 billion loss. And Intel reported its largest loss ever.
Sector supply and demand are also providing some warning.
Just a couple of weeks ago, there were 31 sectors controlled by demand.
Today that number has fallen to only 13.
So despite a stock market that remains trading near its YTD high, the underpinnings appear to be slipping.
Finally, yesterday’s volume in the S&P 500 was the lowest of the year, so investors’ convictions to chase prices much higher may also be diminishing.
Now more than ever, it is important to have a disciplined approach to investing as the coming weeks will likely usher in increasing volatility.
If you’d like to talk more about how Avalon can help you prepare for whatever the markets have in store next, schedule a free 1-hour consultation with one of our advisors today.
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