2<\/sup><\/p>\n\n\n\n__________________________________________________________________________<\/p>\n\n\n\n
These topsy-turvy shifts in investor sentiment bring to\nlight an age-old question that investors consistently grapple with: if today\nis a big up day for a stock, what does that tell us about tomorrow\u2019s\nperformance? Or, if this month\/quarter was a strong one for the stock market,\nwhat can we assume or forecast about performance in the next month\/quarter? Generally\nspeaking, there are three points of view in answering these questions. <\/p>\n\n\n\n
The first point of view is held by \u2018momentum\u2019 investors and\ntraders. It says that the move from today or this month will carry into\ntomorrow or next month, especially if there is a high volume supporting the\ntrend. A second point of view is the belief that market timers are likely to\nswoop in to buy the dip or sell the rally to take profits, essentially\nreversing the price direction for the stock from one time period to the next.\nIn this point of view, the strong rally in recent weeks must mean that \u201cwhat\ngoes up must come down.\u201d <\/p>\n\n\n\n
The final point of view \u2013 which is the camp I\u2019m firmly in \u2013\nis that stocks are not serially correlated to any meaningful degree. In other\nwords, what happens today, or this month, or this quarter has little-to-no\ninfluence or predictive power over what will happen tomorrow, or next month, or\nnext quarter. Market returns are independent over time.\n<\/p>\n\n\n\n
My concern today is that too many investors\nare basing their outlook for stocks on past performance. In my view, this explains\nwhy so many investors are becoming less bearish as the market rallies, and more\nbearish following steep, one-day declines like we saw last week. It\u2019s a signal\nthat investors are using past performance as an indicator for future returns \u2013\nwhich I advise against. <\/p>\n\n\n\n
Ask yourself this question: has the\nrecent market rally got you wondering if you should take profits off the table\nnow? Or maybe you\u2019re thinking that now is a good time to sell-out of stocks, so\nas to ensure you at least \u201cbreak even\u201d as this pandemic and crisis continue to\nunfold? If the answer to either of these questions is yes, then you\u2019re using\npast performance as a predictor of future returns. Again, not advisable.<\/p>\n\n\n\n
Bottom Line for Investors <\/strong><\/p>\n\n\n\nIn my view, the worst possible outcome happens\nwhen a person changes their asset allocation (usually by reducing their equity\nallocation) because they think a market rally was too strong, too fast, or\nunfounded. I see this happening a lot today, but I think it\u2019s evidence that investors\nare basing decisions on technical indicators and past performance versus\nfundamental drivers. <\/p>\n\n\n\n
I strongly believe the only reason to\nchange your portfolio\u2019s asset allocation is if your financial situation and\/or\nlong-term goals have changed. For many, the pandemic and economic downturn may\nhave triggered personal financial changes that warrant portfolio adjustments. But\nfor most, it probably hasn\u2019t, and any portfolio changes happening now could be\nhappening for the wrong reasons.<\/p>\n\n\n\n
To help you focus on fundamental drivers instead of past performance and technical indicators, I am offering all readers our Just-Released July 2020 Stock Market Outlook Report. <\/a><\/strong><\/p>\n\n\n\nThis Special\nReport is packed with newly revised predictions that can help you base your\nnext investment move on hard data. For example, you’ll discover Zacks\u2019 view on:<\/p>\n\n\n\n
- The economic\neffects of the COVID-19 pandemic <\/em><\/li>
- U.S. returns\nexpectations for 2020<\/em><\/li>
- Background on the\nU.S. fiscal stimulus program<\/em><\/li>
- Why you should be\ncareful in determining what S&P 500 data to use<\/em><\/li>
- Zacks Rank\nS&P 500 Sector Picks <\/em><\/li>
- Status of global\nenergy markets<\/em><\/li>
- What produces\n2020 optimism? <\/em><\/li>
- And much more<\/em><\/li><\/ul>\n\n\n\n
If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!3<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"Mitch looks at this confusing market and whether investors should change portfolio allocation<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8697","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8697","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8697"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8697\/revisions"}],"predecessor-version":[{"id":10591,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8697\/revisions\/10591"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8697"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8697"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8697"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}