As the year draws to a close, HCM would like to present 12 charts that we find interesting or relevant to the current market environment. We hope you enjoy this holiday edition of our Market Insights.
One of the great mistakes many investors make, both amateur and professional, is to see the markets through the lens of a "scientific study". Science, simply defined, "is the intellectual and practical activity encompassing the systematic study of the structure and behavior of the physical and natural world through observation and experiment". The financial markets, however, are neither physical nor natural. And, because many investors react emotionally, behavioral sciences are considered more relevant when building strategic investment options, than the physical sciences.
September 2011. That was the last time the S&P 500 had a monthly performance worse than -6.83%, which is what we just experienced in the month of October. Had it not been for the strong rally over the last few days of the month, that number would have been approaching numbers not seen since the financial crisis in 2008. Market corrections are fairly normal, happening 56 times since World War II. But this will be only the second year ever- the other being 1990 -that the S&P 500 will have had two separate 10%+ corrections in the same calendar year.
Week Ending Oct 19, 2018: HCM Market Insights: "Trick or Treat?"
As you may have noticed, the Mega Millions jackpot is currently north of $1 billion dollars (yes, with a B!). Let’s be honest, the odds are certainly not in your favor. In fact, they are so outrageously not in your favor that you have a better chance of being killed…..by a falling coconut! Now that we clearly have your attention, let’s talk about something that is going to happen with certainty over the next few weeks and how it could make a difference in which direction the market goes from here. And no, I am not talking about Halloween.
At the start of 2018, optimism was plentiful and the expectations for continued global growth had many pundits believing that 2018 could be a repeat of 2017. As a quick refresher, returns in 2017 were stellar across the board with all major asset classes earning double digit returns. The first few weeks of 2018 looked like a seamless continuation of the prior year, but something got in the way towards the end of January. That something was US interest rates.
When was the last time you picked up your cell phone? There is a good chance it has been in the last hour. The answer to the question may seem inconsequential, but it can tell us a lot about how behavioral biases can directly affect your decision making process, both in investing and in life.Some recent research has suggested that being on our devices (phones, computers, and tablets) can be bad for our health in the long run. However, our brains are hardwired to discount that information and satisfy the need for instant gratification, whether that is checking email, opening an app or just seeing if anything has happened in the world over the last 10 minutes. The behavioral finance term for this concept is hyperbolic discounting. It is defined as the need for people to choose smaller, immediate rewards rather than larger, later rewards.