Risk on the Horizon?
As we enter one of the best months for traders to invest for upwards momentum, we keep breaking record highs on many of the well-known indexes that track the market. We see the S&P 500 with new highs, the Dow Jones, the Nasdaq 100 e-Mini, and it does not simply stop there. Also, internationally we see new highs, as in the DAX in Germany, the AEX in The Netherlands, and the OMX in Sweden. But has this momentum been carried appropriately or are we due for some correction, or even long-term downwards momentum?
The US interest rate on the 10-year note is back to approaching 2%, where analysts say that the risk of a recession has significantly been decreased due to the recent rate hike. However, keeping in mind that we have been achieving new highs almost every week for the last 3 weeks there surely has to be a correction, right? Unfortunately, nobody is able to predict the market with 100% accuracy and therefore we simply do not know what will happen in the market of tomorrow with complete certainty.
Depending on your personal view on the market you need to be prepared for plan B. Imagine you are bullish on the market, it would not hurt to spend time formulating a plan B in case your scenario does not play out. As there is great uncertainty with various worldwide events today, for example, the US vs. China trade war, it can go either way very easily. By either hedging your stock positions with bonds, call-put spreads, or perhaps even Bitcoin you might decrease the upside gain but you reduce overall risk. Depending on your risk tolerance you need to find a balance between the two that works for you.
Please remember, this is an educational article and is not considered financial advice.