4 Facts You Should Know about Market Trends

November 13, 2014

moneylifeshow-imageMarkets change over time. Different kinds of stocks come in and out of favor. In 2013, for example, small-caps were in favor, but in 2014, large-caps were the place to be.

We aim to help investors capitalize on major market trends, and in a 2014 interview on the online MoneyLife show, FundX CIO Jason Browne shared some key facts about market trends with Marketwatch.com’s Chuck Jaffe.

Here are 4 facts you should know about market leadership trends:


1. Major market trends typically last years.

“When you look at market cycles, whether it’s growth versus value, large-cap versus small-cap, foreign versus domestic, most of the time, the trends last years, three to five years on average,” Jason said. “And by looking at near-term performance, we’re trying to identify momentum within that trend as it builds.”

2. Market leadership is confirmed over time.

“During periods of transition, there’ll usually be a combination of different kinds of funds and strategies that are highly ranked,” Jason said. “And as leadership becomes clearer and more pronounced, our portfolios get more concentrated in those leading areas.”

This happened in 2014: earlier in the year, both large-cap growth and value funds were highly ranked, but as time went on, our portfolios became focused on leading large-cap growth funds.

3. Reversals are common – even during a confirmed trend.

Even within a confirmed market trend, like 2014’s large-cap growth leadership, there are often short-term reversals. “We did have some windows in 2014 when value was leading, and some windows when small- and mid-caps were doing well,” Jason noted. But if a trend proves to be short-lived, we move on: “when momentum wanes, those funds are out of the portfolio,” he said.

4. No trend lasts forever.

Over time, market leadership changes. Leaders become laggards, and laggards become leaders. “From our perspective, the key thing is to stay open-minded because no trend lasts forever, ” Jason said.

Click below to listen to Jason’s 16-minute interview.

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