FYI | Oct 29 2014
By Peter Switzer, Switzer Super Report
Key points
- Volatility is the new norm and down days are buying days.
- Don't try and pick the bottom.
- November to April is typically the best time of the year for stocks.
As October gives way to November, there are 10 tenets I hold to be true that will influence how I plan to invest for the rest of this year and rolling into 2015. I suggest you consider them too and use them to drive your strategy.
First, I expect volatility will become typical of what we see from stock markets for the year ahead as the key investors that determine stock price direction deal with the big issue of when the Yanks start raising interest rates. When the Fed alludes to it or when the market knows that the Fed will soon have to act, then market rates will respond and stock prices will fall.
Other big moments such as the end of QE3, which might end as soon as Wednesday, could also take stocks down. Throw in Ebola spreading in the US and other Western economies, Russia and Ukraine hostilities and worsening economic news out of Europe and/or China, it all should add to volatility.
Second, each of these down days for stocks will be buying opportunities but, as in all these episodes, you have to be determined to buy when you see value. For me, Woolworths getting into the $33-range and ANZ in the $31-range was a signal or a call to action.
Third, it doesn’t matter if you get in too soon as trying to pick the bottom of a sell-off or correction is too hard. In my case, when the dividend stock I’m chasing gives me the yield I think is attractive, I move. I might be annoyed short-term as I see the share price go lower but, in six months time, I’ll be on good terms with myself.
Fourth, October is famous for not only being volatile and even crash-inclined, it’s also historically well known for creating the bottom from which stock prices head north.
Fifth, November to April is the best half of the year to make money out of stocks, with December and January really good for stock prices. I expect a Santa Claus rally and Yale Hirsch, who first coined the term, argues that since 1950 the last five days before New Year and the two days after it have added 1.5% on average.
"Not a big gain, but a nice little positive," Hirsch has said. "There's this general buying bias by the pros at the end of the year after [US] tax-loss selling."
Sixth, despite some experts disputing the leading power of Wall Street for our market, I can’t see our stock market heading up without positivity coming out of our daily reads of the Dow and the S&P 500 index. Right now, every smarty who comes on my TV show, or whom you read about in quality publications, is advising Aussie investors to increase their exposure to foreign stocks and the US is nearly always the preferred option. With this in mind, it’s timely to remind you that the third year of a US presidency is historically very rewarding for stocks and is even more profitable for investors than the fourth or election year.
Seventh, the big causes of a bear market for the US – a coming recession, Fed tightening or raising interest rates too fast, excessively euphoric investors, no sell-offs to take the market to fair value – aren’t there, so it keeps me positive for stocks.
Eighth, the Fed — Ben Bernanke and Janet Yellen in particular — have gambled heavily on QE-strategies to build confidence in the US so authorities won’t let their actions hurt the stock market too much, lest it unwinds all the progress they’ve made. Want proof? Try this from Reuters recently: “The Thomson Reuters/University of Michigan preliminary October reading on the overall index on consumer sentiment came in at 86.4, the highest since July 2007. The gains were unexpected, as a Reuters survey showed a forecast for a slip to 84.1 from last month's 84.6 reading.”
Undoubtedly, helping US consumers is the falling price of oil and gasoline, which will be another big plus for households and businesses, apart from those in oil!
Ninth, the combined effect of the current US reporting season and a steadily improving economy will help Wall Street keep it positive well into the New Year, despite some market-slipping, yet buying opportunities, I’m expecting along the way. They call it volatility!
Tenth, my concerns are Europe’s economic growth, the related Russia-Ukraine war, the apparent ineffectual impact or lack thereof of the European Central Bank to be able to stimulate the Eurozone and finally China. Right now there is no reason to be totally negative on any of these important contributors to overall global economic growth and stock market advancement. And in fact, there’s some good to OK news on a number of these fronts. If they end up being negatives that turn into positives, then stocks could soar!
Sure I could dwell on some negatives and blow them out of proportion – but you can get that most anywhere in the media, so why should I replicate that typical behaviour?
I’m not doing these 10 good tenets for newsreaders — I’m doing this for investors.
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.
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