2018 has now seen two periods of rapid declines in the stock market.  Are the good times really over for good?  We don’t think so, but are definitely watching the key factors we focus on to hopefully tell us if things have changed.  Over the last several years we have been extremely close to our models giving us the signal that we are likely entering a prolonged negative market environment, but they never have gone off.  Right now, none of those factors are flashing sell signals.

If we try to get in and out of the market too much, we are likely to sacrifice returns for doing so.  Giving in and selling during events like Brexit, the Ebola virus, and President Trump winning the election are a few occurrences that likely would have left you behind in this market over the last several years.

Getting the best return from the market requires a lot of patience and fortitude.  That’s not easy to do because our brain is built for reacting swiftly to fearful events.  It’s always easier to look backward in hindsight and think you could have easily ridden a stock or market to great heights.  It’s all-together different to live through the gut-wrenching declines.  If it were easy, then everyone would have a lot more money.

The two main drivers for the decline in the stock market could also be viewed positively.  Interest rates are on the rise from a stronger economy and are still historically very low.  A new trade deal with China that reduces tariffs and protects our intellectual property would be a great thing for our economy.

With corporate earnings still on the rise, along with the high number of job openings available, it’s hard to imagine the top of the stock market has just occurred.  It’s not impossible, and that’s why we rely on a number of technical indicators to tell us if a more defensive posture is warranted.

The best way we know to capture the highest market returns is to patiently stay in the game in the face of scary headlines and declines, unless a truly tectonic shift occurs.  Most of the time volatility is something to ignore, but there are two to three times during a decade when protecting your portfolio can be very beneficial.  If we see a shift from the indicators we focus on, we will look to become far more defensive with our investments.  It’s not perfect.  We won’t get out at the absolute top, but we have the chance to protect our portfolios from the types of declines experienced in 2008 and during the tech wreck.  We will let people know when we feel that an abundance of caution is the best strategy.

(Past performance is no guarantee of future results. Advice is intended to be general in nature.)