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For some, it might be hard to remember a time before Google Maps and modern, commercial GPSes…
However, I distinctly remember what it was like to have to give verbal or written directions to our home.
We live in a small university town in Delaware that was founded in the late 1600s.
And, like many colonial towns, the roads that leave the center of town quickly diverge.
That means, if someone heads to our house on the wrong road, they head away from us pretty quickly – a problem we ran into quite frequently.
However, as I gave directions time and again – and got feedback on how easy it was to find our place, a pattern emerged.
After travelers left Main Street and headed out of town toward our house, there was a period of trepidation while they figured out if they were on the correct route.
That's when I realized something…
The folks trying to navigate their way to our house needed a signpost – a landmark that would remove any anxiety that they were headed in the right direction.
Our nearby country club was the first thing to pop into my mind.
Its vast, beautiful, and distinctive golf course is only a half mile out of town and is nearly impossible to miss.
With such a clear visual confirmation built right into our route, I was able to arm our incoming guests with a concrete cue that they were on the right path – eliminating any unease they might have had.
As investors, that same kind of pre-GPS signpost can be incredibly helpful when we look at the financial markets.
Especially when we are dealing with a narrative that is "in transition."
Over the weekend, I explained how the narrative is evolving.
And today, I want to show you some signposts you can look out for along the way to let you know we're headed down the right path.
But first, let's take a look at where we are right now…
A Narrative in Transition
Since the presidential election last November, the market has been completely focused on the Trump growth narrative.
Optimism over the threefold promise of lower taxes, reduced regulation, and increased infrastructure spending have spurred the markets upward.
Any news that supported this narrative has pushed the market higher…
And any news that ran counter to this narrative (chaos in the administration, thwarted legislative measures, bickering Republican Congress members, etc.) has caused a brief, small market pullback followed by a quick rebound.
Right now, this is still the dominant narrative.
But, as we've seen over the past few months, the next market narrative is already starting to exert its influence…
In June, the U.S. Federal Reserve not only raised interest rates by one-quarter of a percent, it also signaled its intent to start what I call "The Great Unwind," the reduction of their balance sheet assets from $4.5 trillion down toward the 2008 level of $800 billion.
This new narrative will bring big price swings (what Wall Streeters call volatility) back to the markets.
But that narrative has not yet taken center stage.
That leaves us in a transitional period that I talked to you about in my recent video.
In your weekend video update, I showed you a hand-drawn diagram to help you understand how the narrative is evolving. Through the magic of software, here's a screen capture of that visual:
As I said above, the Trump growth narrative is still the market's main mover, but that will transition as the "Great Unwind" plan becomes more concrete.
That leaves us with the same quandary as my pre-GPS visitors…
We know where we're going, but how can we tell we're making progress in that direction and that we've arrived?
Here are some signposts that will allow us to know when the narrative has shifted for good…
About the Author
Nationally recognized technical trader. Background in engineering, system designs, and risk reduction. 26 years in the markets.