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Like a skeleton found in a closet, investors discovered in the first quarter of 2020 that their portfolios were not being managed in the manner in which they had believed.
The major stock market indexes finished lower last week. The Dow Jones Industrial Average lost 0.5%, the S&P 500 Index slipped 0.7%, the NASDAQ Composite fell 0.8%, and the Russell 2000 small-capitalization index tumbled 2.8%. The 10-year Treasury bond yield rose 10 basis points to 1.727%, sending bonds lower for the week despite a late-week rally. Last week, spot gold closed at $1,745.23, up $18.12 per ounce, or 1.1%.
I’m sure most of you noticed the recent spike in market volatility during the last week of January, related in part to the highly unusual trading in heavily shorted stocks such as GameStop and AMC. The VIX volatility index, known as the market’s “fear gauge,” jumped to 37 on Wednesday, January 27. According to Bloomberg, this was “the biggest one-day move since the pandemic-spurred market crash” in March 2020. CNBC reported that the VIX closed on January 29 “with its biggest weekly gain since June .”
The invitation to our holiday party a few years read “Dress: Cocktail.” One of our guests, John Zilli, wondered, “What exactly does that mean?” He Googled it.
The Halloween season has always been one of my favorite times of the year.
Over 2,500 years ago, in what may have been one of the earliest examples of behavioral finance theory, ancient Greek philosopher Aristotle is reported to have said the following regarding the achievement of success.
The major stock market indexes posted strong gains last week. The NASDAQ 100 (the leader for the week) was up 3.8%, the S&P 500 Index rose 3.2%, the Dow Jones Industrial Average gained 2.6%, and the Russell 2000 (the worst performer for the week) gained 1.7%. The 10-year Treasury bond yield rose about 9 basis points, as Treasury bonds fell slightly for the week. Last week, spot gold continued its move upward, rising 1.3%. Lately, the metal has performed more as an inflation hedge than a safe-haven asset. It is up nearly 30% year to date.
This year has been somewhat like a master class, or real-time laboratory, in illustrating some classic concepts of behavioral finance in a compressed time frame.
Think about it.
For more than four decades, I have been a professional in the investment business. Some may be surprised to find out, however, that finance wasn’t my first chosen career path.
After breaking through the resistance line established over the previous four weeks, gold prices retraced to the same line extension, which has now become a support line (see the following chart). Gold finished the week at $1,735.59, still in an uptrend on the daily chart.
I was listening to one of my favorite radio broadcasts last Friday morning (March 6), about 45 minutes before the market open.
Tom Keene, of Bloomberg Surveillance, was reviewing various pre-market levels.
Dow futures were down at the time around 700 to 800 points, and other indexes were similarly heading south in a big way. He made the curious comment, “It just does not feel like a 49-level VIX for equities at the moment”—even though that is where the VIX stood. (The VIX, also known as the “fear index,” is a measure of stock market volatility. On Friday, it went on to make a 52-week high over 50 before closing at 41.9.)