According to National Geographic, the “dog days of summer” has, “…nothing to do with dogs, or even with the lazy days of summer. Instead, it turns out, the dog days refer to the dog star, Sirius, and its position in the heavens. To the Greeks and Romans, the “dog days” occurred around the day when Sirius appeared to rise just before the sun, in late July. They referred to these days as the hottest time of the year, a period that could bring fever, or even catastrophe.”
Hot is right, as Bloomberg reports, ” The start of summer in the Northern Hemisphere gave us the hottest June since 1880, according to data released Tuesday by the National Oceanic and Atmospheric Administration (NOAA).”
And fever? The spread of Zika seems to check the box there.
How about catastrophe? Anyone watching the news knows that there have been, sadly, plenty of isolated catastrophes to choose from, along with the associated fear mongering coming from the campaign trail. But at least thus far, the markets have behaved, with the summer-to-date return on the S&P 500 sitting at 4.2% (June 20th – August 1st). However, one can’t help but take note of the fact that many high profile investors/firms are raising red flags at present.
“What do you like aside from gold and gold stocks?” – Barron’s
“When I look back to 2007, I really wish we hadn’t reached for long ideas simply because we felt we had to have them. I’m not going to try to find what can’t be found.” – Jim Grant
“The artist Christopher Wool has a word painting, ‘Sell the house, sell the car, sell the kids.’ That’s exactly how I feel, sell everything. Nothing here looks good, the stock markets should be down massively, but investors seem to have been hypnotized that nothing can go wrong.” – Jeffrey Gundlach
“Given equities remain expensive and earnings growth is poor, in our view equities are now just at the upper end of their ‘fat and flat’ range,” – Goldman Sachs. Bloomberg reports that, “Their analysts are downgrading stocks to ‘underweight’ for the next three months, while keeping their ‘neutral’ position over the next 12 months and staying ‘overweight’ in cash.”
Balancing risk against the opportunity cost of being left behind is always a tough call. Fundamentals and valuation levels are rarely, if ever, good short-term market indicators, but they do provide great insight in terms of what a reasonable longer-term payoff to any particular asset should be. Most commonly used metrics portend less than rosy returns from here. Investors should be thinking first and foremost about risk management during the current dog days.