TRENDS AND TOLERANCE FOR RISK
If we knew with 100% certainty the stock market was on the verge of falling 50%, as it did after the peaks in 2000 and 2007, would we rather own 100% stocks or 100% bonds? The answer is simple - bonds. Thus, we can learn something about the present day market's tolerance for risk by reviewing some stock/bond ratio charts.
199 DAYS AFTER THE 2000 PEAK
The S&P 500 peaked on March 24, 2000. October 9, 2000 was 199 calendar days after the stock market's major bull market top. The charts that follow show long-term trends in the stock/bond ratio. Notice how 199 days after the stock market peaked, the 30-week moving average had moved from the top of the cluster to the bottom of the cluster, which indicates waning conviction to own stocks relative to more defensive-oriented bonds.
199 DAYS AFTER THE 2007 PEAK
A similar "the bullish trend is rolling over" look was clearly present on the same stock/bond ratio chart 199 calendar days after the S&P 500 peaked in the 2007-2008 period.
199 DAYS AFTER THE 2018 PEAK
The S&P 500's highest close in 2018 came on January 26, or 199 calendar days ago. How does the same ratio look today? The answer is much better, telling us to maintain an open mind about better than expected outcomes for stocks relative to bonds in the weeks, months, and years ahead.
RED SCREENS AND SCARY HEADLINES
The S&P 500's year-to-date low was made on February 9 at a level of 2,532. Relative to last Friday's close, the market had gained 300 points since printing the intraday YTD low.
This week's video walks through the 2018 correction and subsequent move off the low, allowing us to make a logical comparison of trying to make decisions based on short-term trends/scary headlines relative to leveraging factual data based on long-term trends.
CHARTS HELP WITH ASSESSING ODDS
Charts and hard data cannot predict the future; they simply help us objectively assess the odds of good things happening relative to the the odds of bad things happening. Just as the charts said "try to be patient" in early February, they continue to favor good things happening between now and year-end. We will continue to take it day by day and remain open to all outcomes. If the data shifts in a meaningful way, we will adjust the odds. That may happen, but it hasn't happened yet.