DOUBTJuly 21, 2021 -
Categorized in: IAG News
Be honest. Did you feel more confident about the Bucks’ chances at winning the NBA championship before the Finals started or after they lost their first two games?
I know I felt pretty good about the Bucks’ chances when the series was tied 0-0. Losing the first game didn’t shake me too much (after all, it is just one game). Losing the second game created significant doubt. Winning the third game rekindled my hope. The fourth game gave me more confidence, and the fifth game made me think they could win it all.
Confidence and doubt ebb and flow through every aspect of our lives. They are both healthy in the proper doses, but when one of them becomes entrenched it tends to keep its momentum until something changes our mind or our circumstances.
Right now, the financial markets are going through a change in mentality. So far this year traders have been feeling like they are up 2-0 and just need two more wins. Everything was trending positive – plunging COVID cases, strong demand from consumers, ultra-low interest rates, strong economic growth, and growing profits for companies.
Then doubt started creeping in. A couple of weeks ago longer-term interest rates started falling. Some traders had started buying up bonds for safety – pushing their price up and their interest rates down. Were they simply taking some profits or was confidence waning? No one really knew.
Over just the last week small cap U.S. stocks (represented by the Russell 2000 Index) fell almost 7% as doubting sellers suddenly outnumbered confident buyers. Large cap U.S. stocks (represented by the S&P 500 Index) have also seen more doubters over the last few days.
In the short-term we have no idea how much momentum this doubt will build. It could last a few days, a few weeks, a few months, or even longer. Doubt, like confidence, becomes self-reinforcing until something changes traders’ minds. The financial markets are truly a fickle friend.
In the long-term we understand that we are simply using our fickle friend to help us work toward our personal goals. We must tolerate short-term mood fluctuations and draw our long-term confidence from a well-designed financial plan. Having a plan helps us stay on track when too much confidence or doubt consume our fickle friend.
When doubt’s power is rising in the financial headlines, boost your confidence by sticking with your plan.
Quote of the week: Voltaire: “Doubt is not a pleasant condition, but certainty is absurd.”
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.
The Russell 2000 Index is a capitalization weighted index of 2,000 stocks of smaller U.S. companies.
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.