Skip to main content

Sound Advice: October 19, 2022

Dead Cat Bounce?

One of the most common occurrences during times of market weakness is what’s known as a dead cat bounce.  A dead cat bounce is a short-term, often only one day, rally of considerable proportion.  These days, that kind of jump would probably be in the range of at least 500 to 1000 points in the Dow Jones Industrial Average.  It would be tempting to think that these interim rebounds are indicative of more to come, but almost always they are nothing more than temporary relief from a lengthy plunge in the leading indexes.

It would be naïve to think that they signal a continuing change in the direction of the market.

Current economic prospects are not encouraging.  The Fed has already increased the federal funds rate from essentially zero to 3.25%, thanks to a trio of 0.75% jumps, and indications are that there is more to come.  Indeed, one might well expect to see this key indicator near 4.50% before the program of tightening ends next year.  This is the Fed’s primary tool in dampening the economy and getting rampant inflation under control.

Although the central bank’s goal is a soft landing in which business slows temporarily, the history of these efforts suggests that economic conditions will get much worse and extend, perhaps intensify, the recession that has been under way so far this year.  To date, the labor market remains strong, though one has to wonder how this strength may persist when overall conditions finally react to the Fed’s credit crunch.

However severe the impact of higher interest rates, they will eventually flatten and then ease.  By that time, yields on fixed-income investments will be of more interest and subsequent easing will provide the potential for principal appreciation as well as current income.

We are not there yet and may not be for a number of months.  As before, the investment markets look ahead, sometimes far ahead.  In the past, the September-October time frame has often been a period when weak markets changed direction.  We could be seeing that now, but it would be best to tiptoe in to take advantage of lower prices and add in increments over the next few quarters. 

N. Russell Wayne, CFPÒ

www.soundasset.com

Any questions?  Please contact me at nrwayne@soundasset.com

Sound Asset Management Inc.

Weston, CT  06883

 203-222-9370

Comments

Post a Comment

Popular posts from this blog

Sound Advice: July 16, 2025

Fixed annuities are poor investments Fixed annuities are often criticized as poor investments for several reasons, despite their reputation for providing stable, predictable income.  Here are the key drawbacks and concerns:   High Fees and Commissions Internal Fees:  Fixed annuities can carry a range of fees, including administrative charges, mortality expense risk fees, and rider fees. These can add up to 2%–4% per year, significantly eroding returns over time. Commissions:  Sales agents and financial advisors often receive high commissions for selling annuities—sometimes as much as 5%–8% of the invested amount. This creates a financial incentive for advisers to recommend them, even when they may not be the best fit for the client. Comparison to Other Investments:  Mutual funds and ETFs typically have much lower fees and commissions, making them more cost-effective for long-term growth. Limited Growth a...
Post a Comment
Read more

Sound Advice: October 8, 2025

How many investors have outperformed the stock market over the last 20 years? Very few investors have outperformed the stock market over the past 20 years.   Data shows that only about 6% to 8% of actively managed equity funds in the U.S. beat the market over this period, with the vast majority—over 90%—underperforming the S&P 500 or equivalent broad indexes. Percentage of Investors Beating the Market Only 8% of equity funds investing in large companies managed to outperform the market over a recent 20-year span. About 94% of all domestic funds underperformed the S&P 1500 Composite Index from 2005-2024. Over shorter timeframes (5-10 years), typically fewer than 15-20% of fund managers beat the S&P 500, and performance persistence is rare. Why It Is Rare The S&P 500’s high returns have proven immensely difficult to beat, especially as indexing has become popular and markets have ...
Post a Comment
Read more

Sound Advice: January 15, 2025

Why investors shouldn't pay attention to Wall Street forecasts   Investors shouldn't pay attention to Wall Street forecasts for several compelling reasons: Poor accuracy Wall Street forecasts have a terrible track record of accuracy. Studies show that their predictions are often no better than random chance, with accuracy rates as low as 47%   Some prominent analysts even perform worse, with accuracy ratings as low as 35% Consistent overestimation Analysts consistently overestimate earnings growth, predicting 10-12%                 annual growth when the reality is closer to 6%.   This overoptimism can                 lead investors to make overly aggressive bets in the market. Inability to predict unpredictable events The stock market is influenced by numerous unpredictable factors, including geopolitical events, technological changes, and company-specific news.   Anal...
Post a Comment
Read more