No one likes chaos.
It’s much easier when things go according to plan.
But many people have become complacent after the yearlong bull run. That means they could be in for a rude shock.
Ever since the rally kicked off last October, investors could buy the dip… sit back… and wait for the market to make its next leg up.
That even worked when the market sold off heavily in July.
But several signals have been developing that should concern you…
Because they could be a warning of danger to come.
Indexes Diverging
The S&P 500 has regularly made new all-time highs since late September. But the Nasdaq has yet to take out its July peak.
Big Tech stocks dominate the Nasdaq. They drove much of the AI-induced rally too. So the Nasdaq’s hesitancy is telling me something is not quite right.
What’s more, tech stocks should benefit most from interest rate cuts…
That’s another reason the market bid them up so strongly in anticipation of cuts from the Fed.
But over the last day or so, the Nasdaq has been trading around the same level as just after the 0.5% cut on September 18.
That cut was double the 0.25% forecast… Yet there’s been little to no follow-through in the index at all.
And charts of major constituents in the Nasdaq show me that buying momentum is lackluster at best.
That suggests the market doesn’t believe the Fed is going to keep cutting rates as quickly or as much as first thought.
Either that… or Big Tech has run out of steam… and the market is struggling to support its astronomically high forward-earnings multiples.
As I shared earlier this week, stock valuations are near their most stretched levels of the past 30 years. At writing, the forward price-to-earnings ratio for the S&P 500 stands at 21.5. Since 1994, it’s only been higher heading into the early 2000 internet bust and just before 2022’s bear market.
All of this uncertainty is taking place right as we enter a typically volatile period of the year.
Plus, we’re on the cusp of a “too close to call” election – with the potential that the result could face challenges.
All this is stacking up to suggest that the bull market may be coming under pressure very soon…
A Transitioning Pattern
The market is changing… and if you don’t adjust your strategy accordingly, you’ll likely regret it. I believe we’re about to enter a period of subpar returns. I call it a “chaos period.”
Now I don’t want to overplay it. To be clear, I’m not calling for a big market crash.
But if you’re relying on investments to fund your retirement, you might even have to push that years down the track.
A buy-and-hold strategy isn’t going to cut it once volatility takes off. And that assumes you’ll have the fortitude to stick with it through the drops.
We’re going to see increasingly big swings. Just think back to the double-digit fall in the Nasdaq that we saw in July and early August. It caught the market by surprise.
I expect more moments like that ahead.
Those who don’t prepare for these new market conditions are going to be frustrated…
Because after all the stress of riding those swings, they’ll have little to nothing to show for it at the end.
But I’ve been through these periods multiple times during my 40-year career.
And I’ve fine-tuned the best way to thrive during these windows…
|
Free Trading Resources Have you checked out Larry’s free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out. |
Let’s Harness Volatility
I know how to embrace volatility. I put it to work in our corner.
I’ve done this before during periods like the dot-com crash… the 2008-09 financial crisis… the COVID crash… and 2022’s bear market. And my success led to my hedge fund being named in the top 1% by Barron’s.
It’s also why Jack Schwager featured me in Hedge Fund Market Wizards.
And now I want to share my Chaos Blueprint with you…
On October 30, I’m holding a special event that will show you how to prosper during this period of heightened volatility. It’s called Countdown to Chaos.
And the timing isn’t a coincidence… I want you to have a plan in place before the election… and before another key event that is going to happen in the days that follow.
At this briefing, I’ll explain my strategy on how to harness volatility. I’ll even share a ticker that could prove very helpful over the ensuing chaos period.
If you follow the buy-and-hold method… or if you’re nearing retirement, I’d especially encourage you to tune in.
You can register automatically by clicking here.
Regards,
Larry Benedict