The Most Important Stock Market Relationship Just Broke…

“We suffer more in imagination than in reality.”
Seneca

The above quote reminds me of what many “pick of the month” newsletters and market noise makers do to their subscribers and followers.

They teach them to suffer when no suffering is warranted. They teach them to fear a halving of their money when none is warranted. 

And they teach them to live in fear when no war is at hand. 

And so with the start of a new year and decade make an assessment of what worried you in the past that was unfounded. 

Who made you suffer when none was needed? Who created fear in your life when none was warranted?

Simple and easy are not the same thing. But they are closer to each other than say, simple and complex. Those two things are the opposite. 

And though the questions might be complex or complicated the solutions can be simple. A complicated question can have a simple answer. Fear. Worry. Angst. Are never answers. They are manipulations. 

An example of simple… but maybe not easy. 

How can you be a better parent, lower the chance of your kids drug use, early pregnancy, better grades and self worth…? Have dinner every night with your kids… sitting down. Maybe even at home. In your kitchen. 

And so we often think there are a million things to track with investing. But actually there are just a few. And I want to show you one. 

One of my favorite things to track is my “are things getting better or worse based on behavior” price chart. It’s a mouthful for sure but it carries a lot of weight. 

So how do you know how people are behaving with their money? Not talking. Or textings. Or forwarding. Or Facebook’ing. But actually behaving with their money.

You compare the “Everything-is-alright-asset” with the “Things-are-really-bad-asset,” also known as stocks (the everything is alright asset) and cash (Things are really bad asset). 

When the US Dollar is outperforming US Stocks, it usually means something is wrong, or about to get wrong. Wrong in the sense that the future is going to look a little less good then you’d want it to (read: take cover and protect yourself).

But when US stocks are noticeably outperforming US Dollars then it makes it much harder to expect a crash. Because counter to what the fear-marketers want you to believe. Stocks as an asset don’t just get crushed one morning. Their leadership position changes over time. Longer than what people would believe. 

And when people collectively move their stock market money over to the US Dollar, is when collectively people are actually scared and voting with their money.   

The chart below shows the $USD Index divided by the S&P500 Total Returns Index.

When the black squiggly line in the price chart below is falling people are feeling good about the future. Think of it as their fears are dropping or falling with the line. 

When this black squiggly line is going sideways then people are questioning the future and its stability and they are preparing for something worse. 

AND when this black squiggly line is moving higher and higher… THEN people are worried and voting cash over stocks (read: you ought to take cover).

What do your eyes tell you when you look at the price chart below?

Up? Sideways? Down?

Not up. 

Use to be sideways. Now, it’s down. Again.

There are three things that stand out to my brain.

#1 – The US Dollar and the S&P500 Total Returns Index battled it out for almost two years, in fact the breakdown at #3 happened two months short of a two year back and forth battle between these two assets. 

#2 – In the fourth quarter of 2018, when the S&P fell 20% in 90 days. People were moving their money out of the stock market and into the cash market quickly. They were scared and getting even more worried. 

The only reason that spike at #2 is a spike and not the start of a huge move up is because Jerome Powell, The Fed Chair, came out and said he’d drop rates three times instead of raising them three times in 2019.

#3 – The strength of the US Dollar finally broke down relative to the S&P Total Returns two months ago. This could very likely be the start of another two year move higher for stocks just like what happened in the beginning of 2016.

In Your Corner,

RCPeck-Dig Signature.JPG

RC Peck, CFP

  1. So few words…
    “The conditions are never perfect, people who delay until all factors are favourable, do nothing.” – Unknown
  2. It’s hard to describe Elon Musk or Tesla. The company and the man have truly changed the course of history. BUT neither of them are anything but stable. In one year, Tesla price fell 50% and then rebounded and moved higher 130%. In. One. Year. And this is no micro-cap. Its market cap is $75 billion today. Life is amazing. 

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