Investors face a uniquely difficult risk analysis and management environment in today's market. With the Federal Reserve's unprecedented intervention programs making it tough to perceive future stock price changes based purely on fundamentals as opposed to mere perception, investors are stuck in a position where they have to work increasingly harder to make a return while the risk of bearing the brunt of a market sell-off or correction climbs higher.
While many experts suggest that adhering to econometric models is a wise choice in a volatile climate, as they provide a foundation on which to build income growth, the truth of the matter is that these measures are not always indicative of what's happening in the real economy. Given the fact that the consumer body, as a collective market agent, carries enormous influence in the U.S. economy, it might be smart for investors to pay a bit more attention to changes and patterns in consumer demographics – and, more importantly, consumer-oriented sectors.
A recent article from Zero Hedge, an independent financial blog, highlighted some analysis by Deutsche Bank and Goldman Sachs on the matter. Brand-name companies such as Coca-Cola, Google and eBay have been seeing their month-over-month revenue slow down while earnings – which can be influenced in a variety of ways – have remained in positive territory. This chart, denominated in S&P 500 performance, shows how companies in the Consumer Discretionary sector are facing increased pressures and diminished returns. While one investor might look at this and say that it's time to shift their positions away from such investments, others may see the first inklings of serious problems in the U.S. economy.
The point is that the U.S. economy remains unhealthy and, as such, companies that do business within the United States are threatened by any major shift in the ongoing recovery. Risk analysis is inherently more difficult in such an environment because performance fundamentals do not easily translate into justifiable price movements, as one can see every day in stock and equity markets.
Only by using tools such as SmartStops can investors hope to protect themselves in a comprehensive way. Investors who use SmartStops have the opportunity to pre-set triggers that adjust and shift portfolio positions when necessary. These portfolio management tools serve an extra financial bulwark during a volatile investment environment. Investors can even use our Position Sizing Calculator to judge whether a certain amount of a new stock makes sense in the light of recent risk levels. Continue exploring today to learn more!
Categories: Risk Management, Trading & Portfolio Strategies