It doesn’t appear to me that the economic or political situation in the US has changed in any significant way overnight. Yet stocks of most stripes are rising sharply.
What to do? …or if you prefer, what am I doing?
Watching and analyzing.
A day like today contains lots of information, both about the tone of the market and about every portfolio’s holdings. Over the past month, through 2:30 pm est today, the S&P is down by 4.8%. The small-cap Russell 2000 has lost 7.7%, NASDAQ 7.8%. All three important indices are up significantly so far today—NASDAQ +2.2%, Russell 2000 +1.9%, S&P 500 +1.8%. So this is a general advance. Everything is up by more or less the same amount, meaning investors aren’t homing in on size or foreign/domestic as indicators for their trading.
What we should all be looking for, I think, is what issues that should be going up–either because they’re high beta or have been beaten up recently–are shooting through the roof and which are lagging. (“Lagging” means underperforming other similar companies or underperforming the overall market.) The first category are probably keepers. The poor price action for the latter says they should be subjects for further analysis to figure out why the market doesn’t appreciate their merits. Maybe there aren’t any.
We should also note defensive stocks that are at least keeping up with the S&P. That’s better than they should be doing. They may well be true defensives, meaning they stay with the market (more or less) on the way up and outperform on the way down. This is a rare, and valuable, breed in today’s world, in my view, and can be a way to hedge downside risk.
Another topic: Over the past few days, I’ve been in rural Pennsylvania filming my art school thesis project–yes, I’ve gone from stills to video–so I haven’t kept up with the news. I’m surprised to see that the UK, which still remembers the enormous price it paid a generation ago resisting fascism, has done an abrupt about-face and allowed Mr. Trump to make a state visit. The anticipated consequences of Brexit must be far more dire than the consensus expects.