That Was Fun…

The fine folk at S&P/DowJones Indices have informed us that the Dow is on pace for five years of consecutive gains. It’s up 87 percent in that period…the best five-year increase since 2000. The S&P 500 has advanced 27 percent so far in 2013, putting it on course for its biggest annual rally since 1997. And, of all the trading sessions completed so far in 2013, the Dow has closed at an all-time high in 51 of them, while the S&P 500 has finished at a record high in 45 of the sessions. Nicely done, indeed.

I hope that you were able to participate in, and benefit from, this year’s great market results. However, this year’s done so, what’s next?

Generally, still looks pretty good from here for US stocks. I think that, in terms of content and from a stock sector perspective, cyclical issues, (tech, energy, finance, et.al.) continue to look attractive, as do global growth stocks. I’ll be providing details in later letters.

This letter is about context…why I’ve been, and remain, positive in my market expectations. Here are two of the major drivers for those.

Long-term view

All my thoughts about how and what the market is doing or might do are based largely upon the time I’ve spent in this business. 26 April 1973 was the first day that the NY Stock Exchange and I became officially connected. The Dow had closed above 1000 about two months prior but was starting to go down. From then until 6 December, 1974, when the Dow closed at about 577, the Dow lost 45 percent. (1) What a fine career move. Please note, however, that the current value of the Dow at 16,478 is somewhat higher than then.

Here then you have the basis for my market views and economic thinking…the market does (eventually) go up.

Consider all the events that took place during this time, many of them significant in world history. All the situations that were deemed world-ending, or worse, were being offset by the tremendously positive achievements of people. Pretty staggering, when you think about how much happened in just this little piece of time.

By contrast, look at any daily chart of the Dow Jones or S&P500, tracking the highs and lows, minute by minute. Crikey! Looks like a side view of a saw blade. Then, check out a monthly, annual, 5 and then a 10 and 20 year version. Two things become obvious pretty quick. One is that there are always peaks and valleys. The other is that the longer the time period, the less noticeable the valleys.

There’s one more thing about those longer-term charts…the number at the right is almost always higher than that at the left.

I acknowledge that we do have down periods and the best strategies can be crushed if unplanned withdrawals have to be made in one of them. Nonetheless, my experience reinforces my overall positive perspective.

All about cycles

Markets will rise and fall as economic pressures and investor expectations vary. Right now, it seems to me that we’re maybe half way to whatever the next temporary stock market top may be. We’ve recently had multiple years of consolidation – Wall Street for general uncertainty. I think a case can be made that stocks are continuing to break through this consolidation and have more to go as investor attitudes and expectations continue to improve. Cycle up.

The bond market, on the other hand, is moving into the lower end of its bull markets cycle that began in the early 1980s. The transition into higher rates as the economy improves will be a challenge for existing bond and related-type investors. Cycle down.

The New Year

My fearless forecast for ’14 is that the Dow and S&P will each either close higher or lower than they do this year. You can count on it…

Have a most happy, healthy and wonderfully prosperous New Year.

Cheers!

Mike

509-7474-3323

(1) Baltimore Sun, 31 Dec 1974

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