Today, as I write, within the hour news is expected to come from the Federal Reserve and its Chair, Janet Yellen. The market has been highly anticipating further words from her that suggests (implies, hints, insinuates, points to, calls to mind, conjures up) a fundamental policy shift to raise short-term interest rates. In actuality, the market is not even expecting that level of detail from her, but rather just a word, or even a word not spoken (i.e. removing a word such as "patient") that may indicate such likelihood, is indeed, now more likely!
This type of market concern (fear) falls into a category I like to call "NBT" or "Next Big Thing"! As the name implies, there is always another NBT right around the corner. Yet seeing around the next corner is much harder to do than to look back at some of the corners we've crossed. So, let's look at some of the recent NBT'S that we've crossed, and how they've impacted the stock market, using 2 highly watched indices measured by S&P 500 (SPY), and Barclay's Aggregate Bond Index (AGG). Then for consistency, let's measure each NBT from the onset, and corresponding six month period that follows:
1) Falling oil prices (an ongoing NBT): began approximately mid 2014. Measure from July - 12/31/2014
the SPY has gained ~ 5% while the AGG ~ 0.6%
2) Crimea / Ukrainian crisis -- Russian troops entered Crimea on February 28, 2014 (thru July 28th):
the SPY gained ~ 7.5% while the AGG ~ 1.4%
3) Ebola -- not start of disease but 1st reported case on U.S. soil September 30, 2014 - thru today:
the SPY gained ~ 6.4% while the AGG ~1.7
Of course I could go on to include multiple variations of NBT's coming out of Europe (another Greek default headline anyone?) to multiple variations of NBT's coming out of the Middle East(take your pick). Not to mention past hurricanes, or tsunami's, or political events like Egypt's coup d'etat or just the old mundane elections or US Budget impasses.
The point is, there is no point! These NBT's are part of our instant headline / media fed world we live in, and where there's a story - there's bound to be some hype around it. That's not to say none of the NBT's have been more serious or none have seen market downturns following them...these happen too. Yet, unless you can foresee the significant from the insignificant, trading in or out of these events tends to do more harm than good to your portfolio, not to mention more stress in your life.
So my suggestion for a steadier portfolio and happier you is to follow your strategy, or to get some help and set one. Second, change the "Next" to "No".
[btw: one hour has passed, the Federal Reserve meeting has concluded, and Ms Yellen left the word "patient" out of her speech. This was predicted to mean sure doom for the market, but it means something else, and the market is up over 2% since before she spoke......No Big Thing!!]
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