Don’t Fight The Fed, Bear Market Rally is an Opportunity to Reduce Risk
In my opinion the recent surge in stock prices will turn out to be another rally within a bear trend. Current levels are a good exit point for any investor who has capital preservation as one of their primary concerns.
“Don’t fight the Fed” is a long held belief by many investors and Wall Street professionals. The Fed is raising rates and pulling liquidity out of the markets, both can be major headwinds for the stock market.
With inflation still elevated the bear trend could persist through year end and into next year. The following graph, of the S&P 500 Index (courtesy of www.stockcharts.com), illustrates my point. The primary trend of the stock market is down and the recent failed rally is typical of a bear trend, the recent rally failed at the primary trend (the one year trend of prices, the red dashed line). The market overall is putting in a series of lower highs and lower lows.
Until the market regains the bull trend investors who value capital preservation should remain in a conservative position.
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DEFINITIONS
S&P 500 Index - The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90. The index is a capitalization weighted index of the 500 large companies listed on various stock exchanges (such as the NYSE or NASDAQ). The S&P 500 was developed and continues to be maintained by S&P Dow Jones Indices, a joint venture majority-owned by S&P Global. The S&P 500 differs from the Dow Jones Industrial Average and the NASDAQ Composite index, because of its diverse constituency and weighting methodology. It is one of the most followed equity indices, and many consider it one of the best representations of the U.S. stock market.
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