A new era dawns, rewriting the rules of the market game—

With the recent U.S. election, there’s been a big shift from left to right. If history tells us anything, though, these swings back and forth aren’t new; they’ve repeatedly shown up in American politics. A great read that dives into the timing and impact of these shifts is The Cycles of American History by historian Arthur Schlesinger. He noted that these political tides tend to move in roughly 18-year cycles, though it seems to be speeding up a bit in recent years.

For us as traders, there’s an opportunity here. These shifts bring new winners and losers in the business world. Not every company will benefit; some will ride the wave, while others will struggle. That’s where a solid strategy and selective stock picking come in—keeping ourselves on the “right side of the road” will be key in navigating what’s next.

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 Trading Plan:

• Entry Point: If not already in the trade, consider entering on a pullback, possibly around $9.00-$9.20 to reduce risk and align with the bullish trend.
• Stop Loss: Below the $8.00 level (recent support) to protect against a deeper correction.
• Target: The next target could be around $10.50-$11.00, as this is the next psychological resistance level. If the momentum continues, there could be a potential breakout above $10.
• Risk Management: Watch for volume on the next leg up. If the volume stays strong, the uptrend could sustain. If momentum weakens further, there’s a risk of a pullback towards support levels near $8.00-$8.50.

"It’s Not Easy" covers a wealth of investment wisdom, focusing on second-level thinking, the challenges of making superior investments, and the risks associated with following popular trends.

Here are some key takeaways that may be helpful for your future analysis:

1. Second-Level Thinking: Marks emphasizes that to outperform, you need to think differently from the crowd—first-level thinking is simplistic and surface-level, while second-level thinking requires deeper, more nuanced analysis. For instance, it's not just about identifying a good company, but understanding how the market views it and where you can find a mismatch in expectations.

2. Investment Complexity: Investing isn't supposed to be easy, and anyone who thinks it is likely underestimates the nuances involved. Marks discusses how markets efficiently eliminate easy opportunities for excess returns due to the constant participation of well-informed investors.

3. Counterintuitiveness of Risk: Marks also highlights how the perception of risk can be counterintuitive. When everyone believes something is risky, its price tends to decrease, which can make it a safer bet. Conversely, when the consensus deems something safe, its price might be inflated, increasing its risk.

4. Loneliness of Superior Investors: Successful investing often involves being contrarian, leading to loneliness as you're likely to hold positions others deem unattractive. However, superior returns come from identifying overlooked qualities or mispricings that the broader market doesn’t see.

5. Price vs. Value: The memo reiterates that price alone doesn't make an investment attractive—investors must focus on the relationship between price and intrinsic value. The price of a seemingly high-quality asset may be too high, while a lower-quality asset could be undervalued and offer a safer investment.

These insights can guide your future analysis by emphasizing the need for deeper research, avoiding herd mentality, and focusing on finding value where others aren't looking.

Why You Should Exit the Equity Market When the Fed Starts Cutting Rates in September

History has shown us time and again that when the Fed pivots to cutting rates, the equity market is often on the verge of a steep decline. As we approach the next potential rate cut in September, it’s crucial to reconsider your position in the market.

Take a look at the chart above. It illustrates how the majority of market declines during bear markets have occurred after the Fed began cutting rates. This isn’t just a coincidence—it’s a pattern that has repeated across multiple decades and market cycles.

- Past Declines: After the Fed's pivot in the 1970s, the market dropped by 36% and 48%.

- 1980s: We saw a 27% decline.

- 2000s: The dot-com bubble and the Great Recession brought about drops of 51% and 58% respectively.

- Recent Years: Even in the 2020s, we've seen a 35% decline following the Fed's pivot.

The takeaway? When the Fed signals a rate cut, it’s often a sign that the economy is weakening—and the equity market is likely to follow suit.

 

As the Fed gears up for another potential rate cut, staying in the equity market could be more risky than rewarding. Now might be the time to start planning your exit strategy.