This past month the Dow experienced its best June gain since 1997, and the S&P 500 and Nasdaq had their best June since 1999 and 2000, respectively. Did it seem like a strong economic month to you? Probably not since the underlying global economic fundamentals are still weak, and continue to weaken. However, the weakening data is paving the way for more bailouts and money printing which would likely be a short-term positive for stocks.
While the markets reacted positively to “progress” being made in Europe, it’s a little hard to believe since this isn’t exactly the first time we’ve been told that. As a matter of fact, this time last year, the Wall Street Journal published “Blue chip stocks posted the biggest gain in more than two months as signs of progress in Greece’s debt crisis sparked a broad market rally.” Over the last two years we have had countless “solutions” to the European crisis with a corresponding market rally, only to have reality set in and the gains erased. The bottom line is that the results of the European meeting did not justify a huge rally in stocks as the obstacles are still many, and the immediate problems still dire. It is hard to imagine that the sharp rise of the markets the last 2 days of the month didn’t have something to do with quarter-end “window dressing” by mutual funds, and the very high short-interest in stocks (negative bets on the market were at the highest since October 2011).
It is our opinion that in the next 5 years, the most successful investors will be the ones who avoided the big market downturns and protected their capital. Once global economies and financial systems clear the bad debts (which will require some short-term pain), the next great investing bull market will take place. This will be a point where great fortunes can, and will, be made. The key will be ensuring that you have the capital to deploy when you can make investments of a lifetime. It is important to remember that while the Great Depression was an awful period in history, great investment opportunities were presented in its aftermath. But, only those who protected their capital during the period had capital to invest afterward. Those that took untimely and unnecessary risk were wiped out and could not participate in the once-in-a-lifetime investment opportunities that followed.
The question is: Are you willing to play it safe in the short-term, capital hostile environment to make sure you have capital (or more capital) to invest in the next great bull market?
Do you have an investment strategy that seeks to protect your portfolio against volatile economic conditions? Call me to schedule a free review of your current investment portfolio – 913.402.6099.
John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit https://www.chladekwealth.com.
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