In yesterday's post I said the decline did not feel like a panic. Today's follow through seemed a little more panicky but that is less obvious to me versus early February. This week the indexes all fell by more than 5% and going back to last Tuesday the declines range from the high sixes to the low eights, percentage-wise. That is very fast which is why I give more credence to the possibility that this is simply another panic.
It may seem like a flip flop from yesterday and maybe it is but everything I said yesterday is still in play; this is either serious or it isn't, I don't want to guess so I will stick to my process for initiating defensive action which is close to triggering but has not yet done so.
As of today the 200 day moving average (DMA) was 2586 and the index closed at 2588. Getting into the weeds a little, remember that this is a moving average and so the 200 DMA will be a little higher on Monday. I am not going to try to out-maneuver that. At the close on Monday, the S&P 500 will either be below its 200 DMA or it won't.
The tariffs are bad, there's no way around that. It seems like many countries will be exempt with China being a very notable exception. The Facebook situation is bad but really more so for the market, it is no where near the bigger picture threat that the tariffs are. The FOMC is more hawkish and saying that is bad, doesn't frame it correctly, I think the concern is more the FOMC getting it wrong which is both the historical tendency but also there is no precedent or even textbook to guide them as to how to undo QE. The turmoil in the White House is bad. His supporters will say it is not politics as usual and they might say he thrives on chaos. His detractors will say he is creating chaos, but not thriving from it. I saw something on Twitter from Barry Ritholtz that said at this point in their respective presidencies, Bush 43 had one person leave, Obama had 3 people leave and Trump is at 17. The market may not know what to do with that.
No one knows what will happen next and it is ok to say you don't know what will happen but it is not ok to abandon your investment strategy when things get turbulent. If you are buy and hold no matter what, you should hold no matter what. My strategy includes slowly initiating defensive action when the SPX breaches its 200 DMA so that is what I will do.
There's nothing wrong with having opinions about what is going on, as an adviser I think you should have something to say but no matter what, right or wrong you are relying on investment process not an interpretation.
I find this approach to be much easier, a lack of discipline which I think is unfortunately quite prevalent makes an already difficult task more so.