While disclaimers for financial services everywhere remind investors that “past results are no guarantee of future performance”, the evidence that shows various market dynamics repeat themselves throughout history is overwhelming.
In William O’Neill’s bestseller, How to Make Money in Stocks he demonstrates time and time again with real-life examples, how interest rates affect different parts of the market.
Even going back to the 1950s when powerhouses like bowling company Brunswick were in their prime, O’Neill shows how federal fund yields topping out coincided with the high growth stock hitting its bottom, paving the way for a historic advance, despite broader markets remaining bearish.
At the same time, a similar pattern played out with technology stock, Texas Instruments, which for those only focusing on the return of the bull market, again would have missed an enormous opportunity to build a lucrative position and valuable cushion for risk.
The examples demonstrate why it is extremely important to not have a black-and-white view of the market. They are often shades of grey, therefore understanding that interest rate impacts on stocks and sector rotations are very powerful.
Making sense of these dynamics within the scheme of how the markets work, regardless of the decade, regardless of the stock, or regardless of the sector or industry, and how they relate to one’s entire trading system, means truly understanding the varying components of the “market machine”.
Using this knowledge to build confidence and a holistic toolset that works cohesively together equips a trader with a whole new level of acumen and the ability to pivot and recognize valuable new sector trends.