The Known Unknowns

Well that was an exciting day to start the new year. The S&P 500 (SPY) opened down 1.66%, fell another 0.95% and then rallied 1.2% into the close. When all was said and done it fell 1.4%, making today the worst opening day since 2008.

While it may be interesting to look back at what opening days like this have historically meant for the rest of the year, the reality is these numbers have absolutely no bearing on what will actually happen. Nobody knows what the future holds and as we prepare for the new year, it’s helpful to remind ourselves of the following known unknowns.

  1. What is priced in to the market.
  2. Who is on the other side of your trade.
  3. What the optimal asset allocation will be over the next twelve months.
  4. What investors will be willing to spend on each dollar of earnings.
  5. What the Fed will do with interest rates.
  6. How fast or slow the economy will expand or contract.
  7. Exogenous events that will impact the market.
  8. Your future spending needs.
  9. How you will react to large market moves without a plan to guide you.
  10. What the best asset class/sector/stock will be over the next year.

If watching the market is not your full time job, and even if it is, having a plan in place is the most important thing you can do to increase the likelihood of achieving your goals.