Investing Perceptions
In spite of all three major US market indicators having hit new highs in May, each only managed slight gains for the month. The Dow and S&P500 were each about 1% higher with the NASDAQ up over 2.5%. Year-to-date, the S&P is up just about 2.5% on the year; with dividends, it’s up almost 3.25%.
One of the things about making new highs is that they really are fairly routine and not particularly significant in themselves. They are neither to be celebrated nor feared. Simply making a new high, contrary to what the financial media would have it, does not suggest or imply we have to go lower. Valuations can go higher after new highs.
Market lookback
I’m very much in the camp that says that all this wringing of hands and high levels of uncertainty about the markets is way overdone. Over the 40+ years I’ve been helping people with their investments, it’s always seemed to be “sophisticated” and “insightful” to be saying negative things about stocks and the outlook for them and our economy. There’s still in many people a deep reluctance to believe that the recession is over.
For reasons I can’t begin to understand, many just can’t acknowledge what has and is happening from a positive side. They still don’t seem to want to recognize that inflation is nowhere in sight, to admit that the market rally is much more than just the result of Fed actions, to ignore ongoing positive economic data and to disregard the huge and continuing recovery in corporate profits. Think of it this way…QE did NOT invent the iWatch.
I was reminded of that when I read this past week that Tuesday had been the 53rd anniversary of what was then the second largest point decline in the Dow…35 points. (To be fair, that represented a 5.7% drop, which would be like 1000 points today.)
Based on a LIFE magazine report at the time, 1962, it appears that obsessing over what the market did negatively in the past is not just a function of today’s investing approach. Here’s a quote. “The glacial heights of the stock boom suddenly began to melt in a thaw of sell-off. In one frenzied day, US stock values – glamour and blue-chip alike – took their sharpest drop since 1929. Memory of the great crash, and the depression that followed, has haunted America’s subconscious. Now, after all these years, was that nightmare to happen again?” By the way, stocks had been up for 15 years after WWII up to this point… Seem familiar?
Today, the 24 hour info cycle, with its random assembly of bits and bytes, creates perceptions and misperceptions, as well as feed fears and phobias. Managing ones emotions in the face of (always) uncertain markets – in addition to having a well thought-out strategy for investing – is probably one of the main keys to your success. What markets did is only of minimum historic or cocktail party conversational interest. Toss out your “shoulda, coulda, woulda” thinking. It’s only where your investments are going that’s important…
Tea leaf readings
Here are some thoughts from last week from some of Wall Street’s top analysts with their thinking about the market’s direction.
The least positive was Goldman Sachs strategist David Kostin and his team. They see the S&P500 settling around 2,100 by year’s end and with the index at just 2,125 a year from now.
Thomas Lee, formerly with JPMorgan and now on his own, said Tuesday he sees the S&P 500 adding another 10 percent, predicting 2,325 for the S&P by year-end.
Morgan Stanley’s Chief Market Strategist Adam Parker boiled down three reasons investors should keep buying:
• “Firstly, we think the bottom-up earnings estimates are too low.”
• “Secondly, we think the US economy will improve.”
• “Thirdly, we think sentiment about US equities is relatively low.”
Citi’s chief US equity strategist, Tobias Levkovich, introduced a new 12-month target for the S&P 500. “A mid-2016 S&P 500 target of 2,300 looks reasonable, though any new interest in US stocks by the general public or global investors could lead to even higher levels.”
Finally, Craig Johnson, senior technical research analyst for Piper Jaffray, has a year-end target on the S&P 500 of 2,350, which is an 11 percent rally from current levels.
The fact that they’re all pretty positive doesn’t preclude any corrections on the interim. Again, corrections are part and parcel of a bull market. NO reason to worry, be concerned or, worse yet, sell. Markets don’t die of old age or simply because they’re high. Only significant tightening by the Fed and/or a recession will end a bull’s run.
Closing thought
I read another couple statistics last week that may give some insight as to why the markets are remaining in a trading range as we approach the Fed’s rate raising.
First, according to the most recent American Association of Individual Investors investment survey, the extent and duration of investor neutrality is setting new records. For seven weeks, from the week ended April 9 to the week ended May 21, more than 45% of the group of investors surveyed said they were “neutral on stocks.” That sets a record in a survey that has been conducted since 1987, leaving both bullish sentiment and bearish sentiment below historical averages.
Second, is that 2/3 of all the traders in NY have never experienced a full Fed rate tightening cycle…they’ve only seen rates drop, so they have no clue/experience in the effects on the various market sectors when the rates move higher.
Cheers!
Mike
Securities and Investment Advisory Services offered through KMS Financial Services, Inc.
To get an overview of economic conditions, use this link. It’s updated monthly. http://www.russell.com/Helping-Advisors/Markets/EconomicIndicatorsDashboard.aspx
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