The unprecedented actions by the Federal Reserve and other central banks are helping to keep investors numb for now. This is the first consumer and labor market down-cycle in 11 years. The consensus view still appears to be a quick recovery, but recessions tend to linger far longer. It took equities on average 18 months to record the final low in the past. To feel reassured by the massive fiscal and monetary support provided by global governments would be missing the elephant in the room. This is the first consumer and labor market down-cycle in 11 years.
For long term investors, government tax cuts won’t lead to much in the way of consumer spending. In addition, businesses will cut capital spending aggressively. This whole situation is understanding the ineffectiveness of monetary policy in the context of an economy which is cratering for social and medical reasons.
So, is it prudent to chase the rally? Yes, if you are a day-trader. Even momentum traders like ETF Trade Advisor must trade carefully and take advantage of selling to the herd’s in quick euphoria and buying into fear and despair. The best way to analyze the stock market is through multiple time frames with a disciplined rule-based approach.
Watch this space as we execute and inform our members with our buy and sell signals for SPY, the S&P 500 index ETF.