As of last week, the Market Climate for stocks remained characterized by unfavorable valuations and unfavorable market action, holding the Strategic Growth Fund to a fully hedged investment stance. In this position, the primary source of day-to-day fluctuations in the Fund is the difference in performance between the stocks held by the Fund and the indices we use to hedge (the S&P 500, Russell 2000 and Nasdaq 100).
The somewhat oversold condition of the market on a short-term basis may soften the impression that there is any urgency to risk management here. I think that could be a mistake. It's worth repeating that if you are following a disciplined investment program and your asset allocation is constructed to weather a wide range of potential risks, I would prefer that you ignore my views and do nothing. But if your investment security or future plans would be unacceptably affected by a further, possibly substantial market loss, and particularly if you'll need the funds in a short number of years, I would suggest getting your risk exposure to the point where you can tolerate negative market outcomes.
Randall Forsyth offered the following nugget in Barron's last week, with which I can't disagree: According to Bespoke Investment Group, there have been 58 "corrections" of 10% or more in the Standard & Poor's 500 since 1927. In 33 cases, the corrections stopped short of the 20% bear market threshold and the market went on to higher highs, while 25 times they grew into a full-grown grizzly. But in the 32 instances when the market has dropped as much as this one has -- 14.4% from the April 23 peak through Monday -- the outcome has been heavily weighted to the losing side. Only seven times drops of that size stopped short of the 20% bear mark. In the 25 other times the decline extended to 20%, the average bear market decline was 35.5%.
To read the complete Hussman weekly Market Commentary, click here.
The somewhat oversold condition of the market on a short-term basis may soften the impression that there is any urgency to risk management here. I think that could be a mistake. It's worth repeating that if you are following a disciplined investment program and your asset allocation is constructed to weather a wide range of potential risks, I would prefer that you ignore my views and do nothing. But if your investment security or future plans would be unacceptably affected by a further, possibly substantial market loss, and particularly if you'll need the funds in a short number of years, I would suggest getting your risk exposure to the point where you can tolerate negative market outcomes.
Randall Forsyth offered the following nugget in Barron's last week, with which I can't disagree: According to Bespoke Investment Group, there have been 58 "corrections" of 10% or more in the Standard & Poor's 500 since 1927. In 33 cases, the corrections stopped short of the 20% bear market threshold and the market went on to higher highs, while 25 times they grew into a full-grown grizzly. But in the 32 instances when the market has dropped as much as this one has -- 14.4% from the April 23 peak through Monday -- the outcome has been heavily weighted to the losing side. Only seven times drops of that size stopped short of the 20% bear mark. In the 25 other times the decline extended to 20%, the average bear market decline was 35.5%.
To read the complete Hussman weekly Market Commentary, click here.
