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Writer's pictureMichel Villa

The Importance of Mental Preparation: When Psychology Drives the Markets

After recording its worst weekly performance of the year (-4.25%), the S&P 500 bounced back with its best weekly performance since last November (+4.02%).


Although the benchmark index is trading near its all-time high, there are no signs of exuberance in investor sentiment. According to Deutsche Bank, the stock market experienced its first outflow in five months. Moreover, risk appetite and short-term return expectations are at levels comparable to those seen during Russia’s invasion of Ukraine in 2022 and the U.S. regional banking crisis in 2023, according to the Investment Company Institute (ICI).



This week, the stock market's movements will be closely watched, especially with the expected decision this Wednesday on the direction of the U.S. federal funds rate. From a seasonal perspective, the NASDAQ-100 is entering a week where historically it has only finished higher 37% of the time over the past 19 years, according to TrendSpider. Generally, September is known for being a month with relatively weaker returns, largely due to numerous industry conferences where corporate leaders sometimes revise their growth forecasts downward.



In this volatile context, it is crucial to mentally prepare for the week ahead by considering the psychological factors that influence our decisions.


Sources:

Daily Chart Report. The Chart Report, September 13, 2024.

The MarketEar.com. Why So Serious? (Part II). September 15, 2024.

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