Another down day for stocks and it’s in times like these when someone like me earns their money. So, what’s the wise counselling I’ll come up with?
Read the following as my strongest reasons why I think we’re looking at a buying opportunity. I don’t write this without knowing that this is a more risky view now than say March 2009, when stocks started heading up after the GFC crash.
It’s also more risky than two years ago when we weren’t long into a bull market but if you think this started in 2009, then we’re into the sixth year of this upswing.
Steady as she goes
The median bull market lasts 50 months, so you can see why I’m not telling you to buy with your ears pinned back.
That said, the bull market of 1975-1987 went for 153 months and so did the one from 1988 to 2000!
Because interest rates are historically low, I think we are in a slow rising economic cycle and this will extend out this bull market cycle. If the US economy wasn’t showing strong signs of growth I’d be worried, but it is showing signs of growth. Europe is also displaying positive signs.
I am certain the Oz economy will look better around year’s end and the falling dollar will help our economy and stock market.
My fingers are crossed on China and if it can stimulate itself to some better economic readings then this time will be a great buying opportunity.
Right now, China’s growth and the Fed’s first interest rate rise are question marks that are rattling the confidence of investors. However, as stock prices fall, value increases and I expect that if the Fed raises rates next week, we will see stocks head up, even if there is an initial stock dumping.
Tough months
The following chart also shows that this is a rough time for stocks, with the Yanks seasonally very negative around August and September, while we can be on a stock market downer from September to November.
However, December invariably brings a big Santa Claus rally.
Source: AMP Capital
I would argue that seasonal statistics will meet the Fed’s overdue rate rise and the improving US economy and stocks will head higher. This will have a leadership role for our market and these bad times now will prove to be seen as another buying opportunity.
To add to my argument, let me point out that rising interest rates generally kill off bull markets and our market is a long way from that.
The natural order of things
I said this recently but I will repeat it here. Sir John Templeton advised us that:
“Bull markets are born on pessimism, grown on scepticism, mature on optimism and die on euphoria.”
We have hardly been optimistic, let alone euphoric!
Another argument I’d advance is that the Yanks are in the year before a US election and this historically has been good for stocks.
The S&P 500 started the year at 2058.90 and is now at 1921.22, so it’s down 6.7%. However, already, bargain hunters have been scooping up quality companies that were sold off in the biggest share sell off in 996 days. That was how long the Yanks had waited to see a correction and this was double the usual time.
If I were a gambler, I’d buy on every big dip before the September Fed rates decision but if I was cautious investor I’d wait until after September 17. If the market responds positively to the decision, if it happens, then I’d join the rally and wait for Santa Claus.
When it comes to stocks, I don’t like gambling, I prefer investing. And when I invest I do it when I’m not worrying. I’m only a little worried now but I think the argument above will help me get over it.
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