Readers may have noticed that global stock markets, especially the US markets, seem very resilient to bad news. The stalling of talks on a US/China trade deal have whittled off part of this calendar year’s upside, but that is only some 3% against an 18% or so gain. There appears to be optimism in the US that the Chinese will cave in (but the Americans don’t really have an objective view in my opinion).
A comment from a trader quoted by Bloomberg today possibly reflects the attitude of some participants. To paraphrase – after a strong rise in markets a 7% or so setback is to be expected and investors need to focus not on the worries that caused the setback, but on what price is low enough for them to buy more of their favourite stocks.
That is frankly over optimistic (I put it politely). Of course, we know markets can move with momentum and that will usually push them both up and down beyond the right price relative to the value on offer. But momentum reverses and it is unwise not to remember that.
An interesting fact in the UK balance of trade data (the worst ever) published last week was that a larger than average chunk of the import balances was purchases of gold.
I have said before that if a significant number of investors with big money are not so confident about markets, it usually shows in the direction of the gold price. The relative balance of buyers to sellers is of course the main driver of that price, so maybe that bit of data is an indicator that in the UK a least, people are beginning to hedge their market positions more than they have been.
On reviewing the range of data I have seen of late, I can’t say I would want to rush in and top up my investments at current prices, or even at 7% lower prices. I have commented in other recent (member only) posts on options for speculating a little at the end of a bull market cycle, but the easy option is to hold plenty of cash and wait until there are rock bottom prices!