RISK IS ON AS END OF YEAR APPROACHES

Markets all over the world have rallied after the U.S. Fed gave a hint that it may reduce the number of rate hikes next year.

This rally has gained additional legs when Trump and Xi met in Argentina to agree on a suspension of U.S. Trade sanctions on China. Today, before market open, in the USA, the S&P futures are up 50 points, or 1.82 percent.

Markets move from optimism to pessimism and back, rather quickly. We are now seeing a move towards optimism. This is also called “Risk On” – a phase when investors like to take risk (because they are optimistic!), therefore, they buy assets with higher risk, like, stocks. Risk On also means exit from low risk assets like bonds (or fixed deposits, in India).

These extreme moves do not sustain for long. Soon enough, corrections start flowing in the market, which eventually cause losses to these “risk on” participants. The reverse is also true – when investors sell out of their blue chip holdings when market correct, they actually sell almost at bear market bottoms.

Investors, as well as traders should maintain a balanced approach to investing/trading. Getting swayed by emotional waves is never rewarding.

The Indian stock market is in an uptrend. Large intermediate declines have recently come in. This will occur at least twice a year. Such declines are buying opportunities. Buy on dips. Focus on blue chips. These two simple rules can enable investors to outperform the market.