We have had bulls .We have had bears(pigs were slaughtered).But if you analyse the market trend of the last 1-2 years, it is basically going nowhere. And we have a name for this “silly” market behaviour. Unlike an enthusiastic bull or a scary bear, a bunny market hops about a bit but really doesn’t go anywhere.
WHERE DOES IT COME FROM ?
It’s certainly not like the Easter Bunny, who goes around handing out treats, but instead more like a rabbit bopping up and down in place. Coined by James Paulsen, chief market strategist of Wells Capital Management, most bunny markets occur in the latter part of an economic recovery. Stocks initially recover aggressively after a recession. However, as the recovery matures, cost-push pressures, inflation and higher interest rates begin to pressure the bull market. This often resolves into a bunny market for the balance of many economic recoveries.
IS THE MARKET GOING ANYWHERE?
Sensex ended 6% lower in the previous year due to China cues and fed rate uncertainty. Before December 16, it was like stocks could be heading into a bear market. Thanks to the Federal Reserve for ending the volatility surrounding the overnight lending rate and China for halting their I.P.O. run. Bulls were back on the trading floor during the start of 2016 but only for a short while. Below target quarter results, N.P.A. crisis and worse growth estimates led the market back to red. And then we started hopping with global crude prices and tax treaties which has left everyone confused.
WHAT DOES IT LEAD TO?
IT WILL TEST YOUR PATIENCE: A bunny market doesn’t lead us anywhere and can be frustrating for the investors. It’s amazing how easy it is for people and organizations to starting doubting or questioning their approach after one year of not making any money after the nowhere market comes into play. They will start calling their fund managers and brokers to get a reason for less than 5% return even after spending hot money on the big caps. But our lovely financial managers won’t have an answer. Then you see them substituting theory with experience.
THEY WILL MAKE IT FATAL TO DIVERSIFY: Yes. If you try to diversify with holdings in multiple companies, bunny markets will challenge your belief in equity. Diversification means always having to hate parts or all of your portfolio over the short-term. Diversified investors will always be disappointed about something over shorter time frames as the market is in oblivion.
GOOD FOR STOCK ANALYSTS: With no trend in either direction the media and various investment strategists don’t know what to make of this market because they’re constantly in search of tops and bottoms these days. If I judged the market based on the headlines and views of pundits throughout the year I would assume we’ve gone from a depression to an economic recovery to a 2008-like crash scenario to a melt-up and repeated that pattern a few times for good measure. This tug-of-war has led investors to believe that it’s been an unusually volatile year.
When nothing is happening in the markets people tend to try to make something happen on their own. The problem most don’t realize is that trying harder in the markets tends to leave you worse off, not better. Patience is always a virtue in the markets, but maybe more so during a bunny market. You can’t force things.
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Views presented in the article are those of the author and not of ED.