The S&P500 and the Dow Jones Index had fallen for four trading days this week and the Nasdaq Composite was not spared too, it fell 1.6% for the week. In this situation, it is natural to be tempted to think about selling early to limit more potential losses ahead but also tempted to think about the potential recovery from this terrible week.
I like to share here on how I navigate the stormy market weather.
First, I try to make sense on the likely factors that are causing the weak week for the broader markets. I think uncertainty sums the factors up nicely. For one, uncertainty about what will be communicated at the upcoming Federal Reserve Sep 21 meeting - the precise timeline when tapering will start and exactly how much will the Fed reduce the pace of asset purchases. Uncertainty about whether current equity valuations are justified in view of potentially slower growth due to the spread of the Delta variant.
Second, I consider how powerful the run up has been for the market indexes. It has been phenomenal and a pause or profit taking by investors are only normal and likely contributed to the weak week of uncertainty we have seen.
Third, I will consider freeing up some capital by taking some profits or cut losses on selective winning stocks/ETFs. This allows me to seize on opportunities should a weaker period of markets befall me.
Lastly, I will consider this: GDP for 2Q was 6.5% which is well below expectations of 8.4% estimate which reinforced my believe that we are not at peak growth yet. This translates to more room for markets to climb or finish year 2021 strongly. Not surprising how analysts are hiking up S&P500 year-end target.
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