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Is the Real Market More like January’s or April’s Market?

Sarah Sands

Jared Dillian's Key Insights on Recent Market Trends

(Continued from Prior Part)

The Market plays Dr. Jekyll and Mr. Hyde

According to Jared Dillian of Mauldin Economics, the Market is playing Dr. Jekyll and Mr. Hyde. In January, when Market participants were worried about global (VTI) (VEU) (ACWI) economic growth, they assumed that 2016 would be a painful year. However, global markets recovered from their respective lows.

Commodity (DBC) (USCI) (BCX) and crude oil (USO) (UCO) (UWTI) prices have also recovered from their respective lows. Dillian points out that “only in financial markets can one thing be true in January and the complete opposite thing can be true in April.”

What’s the difference between January’s and April’s Market conditions?

In January and February 2016, the S&P 500 Index’s valuation fell to 15.1x and 15.14x, respectively. On February 11, the S&P 500 Index lost 188 points from 2016’s high and fell to its lowest level of 2016. That period witnessed a heavy sell-off across different sectors. However, just two months later, the S&P 500 Index is moving closer to its 2016 high. On April 25, the index’s valuation was 17.1x. The graph above shows the turnaround in valuation as well as the price performance of the S&P 500 Index.

Why intellectual flexibility is required to invest in today’s Market

Dillian says that investing in today’s Market requires several qualities, including intellectual flexibility. Investors should be able to hold two opposite ideas at the same time. Very few people have this quality. Those who do have made money in contrasting Market scenarios. According to Dillian, the real Market is in between January’s Market and April’s Market.

In the next article in this series, we’ll analyze why investing in Canada also requires intellectual flexibility.

Continue to Next Part

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