Double Slow Mo

October 6, 2021 - Published by IAG Wealth Partners

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Momentum in the financial markets is a fickle beast.

Sometimes momentum changes are instant. One moment, traders feel invincible and buy everything they can (perhaps even borrowing funds to do so). The next moment, traders feel the world will collapse and sell everything they can in a panic.

It feels similar to one team in a tug-of-war simply letting go of the rope and watching the other team fall backwards. Except there is rarely any laughter in the markets at those moments.

Sometimes momentum changes are slow. Traders feel like the market is still heading in an upward direction, but progress slows or stalls.

In tug-of-war terms, one team gradually pulls the other toward the line with two steps back for every step forward. Progress is in slow motion. Sweat is pouring, hands are blistering, and legs are aching.

Since the March 2020 COVID-induced market meltdown, the bulls had been consistently pulling the bears toward the line. Until something changed in September.

In September the S&P 500 Index went down on 13 trading days and only went up on 8 trading days. That is the highest number of losing days for the S&P 500 in a month since May 2019.

The good news is that, including dividends, the S&P 500 only lost 4.65% in September. The better news is that analysts’ earnings estimates for S&P 500 companies for the next twelve months rose slightly during September according to JPMorgan. This means large cap U.S. stock prices are less overextended than they have been in almost a year.

Traders will likely need additional good news to rekindle the upward momentum they lost in September. This could include specific guidance from the Federal Reserve on when they will begin to reduce their stimulative policies, indications that inflation has stopped rising or is declining, a resolution to the debt ceiling debacle, or lower tax increases on profits.

Until that good news arrives, it appears that traders may continue to experience a double slow mo – a slow motion slowing of momentum.

 

Quote of the week: Mark Twain: “October.  This is one of the peculiarly dangerous months to speculate in stocks. Others are November, December, January, February, March, April, May, June, July, August, and September.”

 


Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. One cannot invest directly in an index.

Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.

Photo purchased through Shutterstock license.

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