Navigate the Noise
The title is actually the name of a book by Richard Bernstein written in 2001. I'd view the book as pretty readable, and the basic idea is that we're increasingly fed more and more information but that doesn't necessarily make for better decision making. We've had quite a bit of news lately, but what should we do with it?
No doubt, it's tough. For instance, I remember reading the details of the tariff announcements when they came out, and it looked like there were a fair number of exemptions, so it wasn't as big a deal as the market was making it out to be. Great, but the market didn't care. My insight, while apparently true, would have actually lost me money if I immediately and aggressively acted on it, and I'd still be down, now. Investing isn't easy, and this is an unusually tough period to invest.
Risk assets were knocked down quite a bit, lately. That happens, though not as much over the last several years, as ample liquidity has made markets comfortably numb. Like anything else you're buying, when something goes on sale, you should probably get more interested.
Financial assets can be tough, though, as they're a social phenomenon, particularly with ample liquidity involved. People get excited and bid assets way up. Assets start falling and people get scared and sell. Volatility spikes and people are forced to sell or sell systematically. In short, there's a lot going on to determine the price you see on your screen. Noise moves price.
I'd say it helps to have a strategy and a process. Personally, I like to be longer-term oriented (though I use multiple time horizons) and look at macroeconomic data. Through that lens, I've been generally and slowly increasing the risk assets I own and reducing my cash. The reason for that is those assets are cheaper, while we have yet to have data showing a recession.
What we do have is a deleveraging mess. No doubt that's problematic and has created downside but historically gets contained. People are selling. Now that panic has progressed so far and so long, do you really want to join them?
One issue to point out is that high volatility, low liquidity, and huge moves are creating a noisy environment. This is helping to stop big upside from happening without a clear motive. We need to see volatility continue down, the dollar steady, and bonds (chart above) and credit improving to get everything moving more smoothly up. We're seeing most of that today, except the dollar (5D chart below,) which is at least holding support. That's encouraging, but we need to see that stick. You'll have to pay higher prices for certainty, though.
I admit, right here, around 5400 on SPX, is not an obvious buying point. Closer to 4800 was much more attractive, but buying Quality At a Reasonable Price (QARP) stocks (the sort in SCHD, for instance) still seems like a fairly reasonable idea.
Yes, all this mess is getting us closer to recession, but we're not there yet, and it can take a while. In the meantime, the market can definitely see improvement. Even at 5400, the expectations implicit in the index are way worse than what the data currently shows. The market is pricing in a lot of pessimism after dealing with a lot of fears and concerns. That can get better, and right now, QARP stocks look like the best deal in town, to me. That doesn't mean they have to go straight up from here, though.
With everyone focused on the next tick up or down, I'd recommend looking at longer horizons. The time to panic was a while ago. Markets are pricing in pretty grim scenarios without the data to back it up. I'm willing to shoot against that, particularly while risk factors, like vol, credit, and bonds appear to be relaxing. If that changes, I'll happily adjust.