Opposites AttractOctober 3, 2019 -
Categorized in: IAG News
Whether you believe this is true in your personal relationships or not, it is as vital a truth in the financial markets as it is for a magnet.
Magnets have a north pole and a south pole. Try to push two north poles together and you will find repulsion; but hold a south pole and a north pole near each other and there is instant attraction.
Similarly, the financial markets require the presence of two poles to function — sellers and buyers.
Sellers and buyers are attracted to each other even though they are completely opposite. If either is missing from the financial markets it creates volatility.
If there are too few sellers, a financial asset’s price rises as buyers try to convince unwilling sellers to come into the market. If there are too few buyers, a financial asset’s price falls as sellers try to convince unwilling buyers to come into the market.
Even though they are complete opposites, both sellers and buyers are convinced they are making the right choice. This healthy conflict of opinion is what determines the price at which a financial asset trades hands.
In October market magnetism seems weaker than any other month of the year. Over the last 20 years October has averaged the highest daily stock market volatility of any month. It seems like sellers and buyers take turns disappearing from the market in October, causing above average price movements.
While a pattern of historical volatility does not predict a volatile October this year, there are clearly enough uncertainties in the world this October to drive sellers and buyers apart and create volatility.
We prepare our clients in advance for market volatility by integrating their portfolio into their long-term financial plan. This gives our clients the luxury of time while sellers and buyers ebb and flow into and out of the financial markets.
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.
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.