Investment Environment Is Entering Goldilocks Territory

Gregory A. Clay • by Gregory Clay

Option Trading Strategist & Financial Writer • Jun 5, 2017 at 12:47 PM EDT

Economy is not growing enough for the Fed to be aggressive. Now might be a good time to tighten stops on bullish positions to lock in gains.

Some analysts are suggesting the investing environment may be entering Goldilocks territory. In other words, the economy is capable of growth, but not so much growth that it nudges the Fed to dial up its plans to tighten rates and wind down its $4.5 trillion balance sheet.

“The data is not strong enough for the Fed to be very aggressive, but yet you still have an economy that is growing and above what you need to accommodate new entrants, but it’s just less fast than the market expected it to be,” said Lisa Hornby, fixed-income portfolio manager at Schroders Investment Management. The updated S&P 500 ETF Sector graph below appears to confirm the analysis above. Utilities sector is considered a similar type of investment compared to bonds because of the relative safety and consistent dividends (instead of interest payments). Utilities sector leading over the past month suggest investors don’t expect higher rates anytime soon.

The negative performance month for the financial sector supports this analysis because lower rates mean less revenue for finance companies which hurts their stock performance. Now might be a good time to tighten stops on bullish positions to lock in gains and be careful with bearish trades in an environment when most asset classes are moving higher.

Disclaimer:

Futures, Options, Mutual Fund, ETF and Equity trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in these markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy/sell Futures, Options, Mutual Funds or Equities. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this Web site. The past performance of any trading system or methodology is not necessarily indicative of future results.

Performance results are hypothetical. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as a lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

Investment Research Group and all individuals affiliated with Investment Research Group assume no responsibilities for your trading and investment results.

Investment Research Group (IRG), as a publisher of a financial newsletter of general and regular circulation, cannot tender individual investment advice. Only a registered broker or investment adviser may advise you individually on the suitability and performance of your portfolio or specific investments.

In making any investment decision, you will rely solely on your own review and examination of the fact and records relating to such investments. Past performance of our recommendations is not an indication of future performance. The publisher shall have no liability of whatever nature in respect of any claims, damages, loss, or expense arising out of or in connection with the reliance by you on the contents of our Web site, any promotion, published material, alert, or update.

For a complete understanding of the risks associated with trading, see our Risk Disclosure.

Comments

Back to all articles