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We Survived Last Week’s Massacre, So What’s Next?

FYI | Sep 02 2015

By Peter Switzer, Switzer Super Report

So we made it out of last week in that crazy stock market of ours, with a 0.94% rise and who would have thought that? Well, I guess I was expecting a comeback following Monday’s overreaction but I am renown for being a dip-buyer, at least at the moment.

I have to admit I left out of my “What I Liked” section of my Saturday report, this from Charlie Aitken in his Thursday note for the Switzer Super Report:

“This has been a major test of my friend Peter Switzer’s ‘buy the dip’ approach to markets. I just wanted to end today by agreeing with Peter’s view. It’s been one big dip, but I believe buying this dip in high quality global and local equities will prove the right medium-term strategy.”

Okay, we survived last week’s market massacre but how do we play the rest of this year? My answer is to play the rest of 2015 in two halves.

A game of two halves

I have to think that September and October will be volatile as these months are two of the worst for stocks.

It comes with the Fed tossing around the idea of their first interest rate rise since the GFC took official rates to virtually zero in September. With the markets sliding terribly last Monday, by mid-week the combined effect of the Chinese rate cut and other stimulus measures and the Fed’s William Dudley telling us that a rate rise was no “less compelling” helped to turn stocks around.

That showed you how sensitive the market will be to the first rate rise in the States. It won’t be for medium to long-term investors as the first rate rise says the US economy is doing well, just as the 3.7% economic growth number was when the first reading the Yanks saw was only 2.3%!

That’s a miles better economy than the one that was in the heads of the stocks sellers last Monday.

Frankly, I hope the Yanks raise rates in September and let the short-sellers, hedge funds and other traders have their fun, which will actually create buying opportunities for longer-term players such as us.

I noted over the weekend in the AFR that someone like Investors Mutual’s Anton Tagliaferro said he was buying stocks such as AusNet and Shopping Centres Australia with yields around 7% as the market sold off.

I think September and October could easily see stocks rise, then fall with things like a rate rise being the trigger, so buying yield-payers on the dip remains a sensible strategy for super players.

The second half will be the game changer

But I would want to be set before November starts as I think the last two months of the year will be rippers, especially if US rates rise in September.

Why I am so confident about a big finish to the year? Well, it’s based on analysis from Sam Stovall who I interviewed last December from New York for my Switzer TV program.

This is what I wrote in the Switzer Super Report back then:

Sam calls himself a “stock market storyteller” but he’s really MD, US Equity Strategy of S&P Capital IQ’s Markets Intelligence group. Here are some of his gems:

  1. He suspects the S&P 500 to be above 2300 by the end of 2015, so that’s about 11% from here.
  2. On the Fed, he thinks the first rise could be later than mid-year to delay the greenback’s rise!
  3. He thinks a correction is needed but it shouldn’t last too long and is unlikely to create a bear market. He points to 1994, when rates rose seven times in 13 months and the market negativity was small.
  4. The gasoline price drop is good news, with every $10 drop in oil said to raise GDP by 25 basis points!
  5. On next year, Sam points out that across the October to October timeframe (just before the mid-term elections and for the year after), the S&P 500 index has been up 17 times out of 17 times, posting a price appreciation of 17%!”

Now his October to October call is out but this US rate rise has been delayed and delayed and so I reckon he will see his bounce in the last two months of the year, which are usually very good for stocks. And the momentum usually rolls into January as well, so this could be a nice Christmas break for us.

By the way, on that same trip to the Big Apple I interviewed Art Cashin of UBS, who has worked at the NYSE for 50 years and he gave me this pearler:

“In over 75 years, in the second-last year of a two-term US president, you won’t find a losing year for stocks!”

Now that’s a great historical omen.

Of course, I don’t overrate history but I like to use it if it fits in with the fundamentals and the economics and, all up, I think there is a certain wisdom to be wary of the next two months, but be set to make some real money in the following two months after that.

I even think our economy might help with the AFR on the weekend leading with the headline: “Consumer recovery tipped: major retailers show lift.”

The Fairfax press leading with a positive story — I love to see that!
 

Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.

Content included in this article is not by association the view of FNArena (see our disclaimer).

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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