‘Twas the Day of the Election…Stock market rally or sell-off?

 

img_59101Dear Mr. Market:

It’s that time of year again….here comes the holidays. One of the most famous Christmas poems ever begins like this:

‘Twas the night before Christmas, when all thro’ the house

Not a creature was stirring, not even a mouse;

The stockings were hung by the chimney with care,

In hopes that St. Nicholas soon would be there;

What if we changed a few words to reflect what Mr. Market will be thinking about instead of sugarplums and Christmas stockings? What is he thinking on Election Day?

‘Twas the day of the Election, when all through the nation

Every citizen was encouraged to get to a voting station;

Constant stories of Wikileaks and groping

Had every American and the stock market moping;

The media was franticly filling their time with endless chatter

All in hopes that our eyeballs would think a new President would matter;

Whether you’re liberal or conservative we all want a sound future for our girls and boys

As it relates to the stock market it simply prays for an end to this noise;

So goodnight to all and may you wake tomorrow

Knowing full well that some will be joyful and others in total sorrow.

We’ve obviously abbreviated our stock market poem to center on the real question so many investors have: Will this election result drive the markets higher or lower?

If you’ve studied the stock market long enough you’ll know that the one thing that makes it nervous is uncertainty. Prior to yesterday’s strong market rally, stocks logged a nine-day losing streak, which was the longest consecutive slump in 30 years. For months the market had baked in an almost guaranteed Clinton victory but with the advent of another FBI probe into her email practices, the possibility of Trump winning began to create uncertainty again and rattle the markets.

As we noted in the most recent edition of our newsletter, the Guide, we believe the way we search and interpret the news will have an impact in how weak hands play their cards at the table. In other words, if you came into this election as a hardcore fan of Trump or Clinton and the results don’t go your way, you will naturally be more inclined to think doom is lurking around the corner. The reality is that with the absolute circus and divisive lead-up that this election has brought us, we’re bound to see about half of the country in tears. Will that impact the stock market though?

Yes…of course it will, but not in the way you may expect. In the short-term you will see a fairly sharp rally or sell-off so your best play (if you’re a trader) would be to take advantage of the volatility. If Clinton wins you will see the markets bump up nicely but then flatten out towards year-end as the reality of four more years of similar economic policies get extended. If Trump wins, it’s our opinion that the market will sell off in a fairly sharp manner but that you’ll see a rebound that will negate much of that. Like him or not, one thing that his potential presidency would bring is change. Lastly, once the short-term effects are played out, the other main guarantee is that whoever wins will face political gridlock. (you can take that to the bank!)

Over the longer-term you will see Mr. Market adjust to what he is given. As alluded to previously, the one thing that will be alleviated is uncertainty. If your investment time horizon is longer than the end of this week, however, you should be allocated properly in advance of any unforeseen event. We’re currently positioned to take advantage of surprises we don’t know about but also very aware of the reality that the markets will eventually gravitate to focusing on actual economic growth or lack thereof.

We believe the market has pleasantly surprised most investors this year. Although we predicted a low to mid-single digit type year back in January…most of the investing world was on the other end of that spectrum. After steep corrections in late 2015 and the worst start to any year in history, it may have understandably been difficult to listen to our advice. So, what’s the advice now?

We’ve lowered exposure to both stocks and bonds as we wrap up this year. Many of our portfolios have at least 15% (and many upwards of 30%) allocated to assets that have low to zero correlation to the market.

Lastly…what if neither win? Albeit an unlikely scenario, there are some that want to hang on Trump’s vague allusion to “keeping the country in suspense” if he loses and doesn’t want to concede. In our opinion this was more of his brash and not too polished debate skills and there would be someone in his ear to settle down his ego with the reality of a loss.

i_voted_sticker-r9e8abad0ab5d4e9fbe7d9321b3b15060_v9waf_8byvr_324We’ll have a “winner” of some sort tomorrow and that will allow Mr. Market to digest what
he’s dealing with over the next four years. Give him some certainty, so get out and vote!

Q3 2015 Stock Market: Déjà vu of 2011 not 2008!

stock-market-correctionDear Mr. Market:

Have you ever watched an old rerun of your favorite TV show or perhaps enjoyed the same movie twice? Of course you have…

Can the same be said for watching similar patterns in the stock market? While nobody wants to see the market go through a nasty quarter like we just witnessed, like it or not, it will happen again. Stock market corrections are not predictable and they air on their own time!

Our opinion, however, is that the stock market in 2015 is very much like the one we saw in 2011. History may not always unfold just as it has before, but several patterns and background indicators tell us that there is a lot to learn from the 2011 stock market year. Take a quick peak at the end of this article for a visual representation of how the markets did from May to late October in 2011 and 2015.

Most of us can’t remember what we had for dinner last night so as a quick refresher let’s summarize what was going on in 2011:

During the summer of 2011 all of the news headlines and the overall narrative was absolutely negative. The sovereign debt crisis in Greece rattled nerves daily. Comparisons of Greece vanishing were eerily similar to the disaster of Lehman Brothers going bankrupt just three years prior. Almost all the financial pundits also talked about the Fed raising interest rates and what a devastating impact that would have on the market. Sound familiar??? Continue reading

Are we climbing the “Wall of Worry”?

slope of hope - wall of worry

Dear Mr. Market:

First and foremost, what is the proverbial “wall of worry”? If bad news is bad…why is it that good news (or even mildly good news) … is also perceived as being ‘bad’?

 

 

Granted, this is not always the case but it certainly is now. What is the “wall of worry”?

DEFINITION of ‘Wall Of Worry’

“The financial markets’ periodic tendency to surmount a host of negative factors and keep ascending. Wall of worry is generally used in connection with the stock markets, referring to their resilience when running into a temporary stumbling block, rather than a permanent impediment to a market advance.”

Two weeks ago we were in Chicago for discussions with analysts, economists, and elite portfolio managers. What’s interesting is that the majority of the investing public is living in fear and at their utmost pessimistic levels of recent history, yet the underlying economics and pure fundamentals of the stock market actually counter such negative and extreme doom & gloom sentiment.

Continue reading

MPG Core Tactical 60/40: August 2015 Performance Update

MW-BB798_sm6040_20130422180557_MDDear Mr. Market:

If you’ve never experienced a stock market correction until now (technically defined as -10% or more), you have either never invested or have only been investing since 2012. For the vast majority of others, you should know that markets “correct” on average at least once every 12-18 months. One reason why this feels worse than other corrections is because we just went 47 months without a correction of -10% or more! (third longest streak on record)

For a refresher, stock market corrections are short and sharp declines of -10% to -20%. They’re typically accompanied by sensationalized stories such as the European sovereign debt crisis, Greece’s exit from the Euro, or the “fiscal cliff”. For all those investors that ducked for cover and went to cash during the last correction you saw the Dow Jones move up over 6,000 points. Were you able to correctly “time” your reentry into the market? No…and you’re not alone. No matter what you read or hear there is not a single person or professional advisor that owns a crystal ball and can consistently time the market.

If you’re new to this monthly series…remember what we’re doing. This exercise, as we like to call it, is not an attempt to pick the best stock or “time the market”. We leave that futile task to those who own time machines and accurate crystal balls. For a refresher, see our first article on the MPG Core Tactical 60/40 Portfolio.

Here’s the current summary of the MPG Core Tactical 60/40 portfolio mix, which is updated as of this writing (September 1, 2015).

Click here to compare our portfolio against the benchmark.

From the last week in July to this writing the MPG Core Tactical 60/40 portfolio went down -4.49%. How did the rest of the markets do? Continue reading

What stock market volatility?!?

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Dear Mr. Market:

How crazy has this market been? As always the stock market has been very volatile, right?

Not even close…. The stock market is essentially in a coma right now and you need to ignore whatever news source or preconceived notions that tell you otherwise. The irony is that some of the “smart money” could not have got the volatility prediction more wrong.

In January of this year Scott Wren, senior global equity strategist at the Wells Fargo Investment Institute, predicted dramatic swings in many areas of the market. He summarized this sentiment by saying, “I don’t see this volatility going away anytime soon.” We’re not out to point fingers but it’s blanket statements and unaccountable predictions like this that paralyze people or simply clutter their investment strategies and overall mindsets.

We’re actually in an extremely low level of volatility. It’s been eight weeks since we’ve seen a move of at least 1% or more in the S&P 500 and that hasn’t happened in 21 years! We also just wrapped up the first half of 2015 and there wasn’t a gain or loss of 2% which marks the first time that has happened since 2005. (Click here to see 2015 volatility relative to recent years)

As the stock market inches higher it all comes without a healthy and much needed correction. As of this writing we haven’t had a correction (-10%) for 1,359 days! You can look to our previous articles on how often corrections and pullbacks should be occurring to put this flat environment into perspective.

As an investor you actually should be doing what we would call a “volatility rain dance”. Bring it on! You want volatility. If your long-term belief is that the economy will improve and inflation seems to remain very much in check, you want a pullback in the market in order to put some money to work. Cash sitting in a bank earning “zero point zilch” needs to work harder and smarter but without a material pullback in the market it makes it somewhat uninviting to deploy cash.

Low volatility doesn’t necessarily equate to the “quiet before the storm”…although it’s certainly easy to think that way. The market is not a weather system but rather it needs a catalyst to move strongly up or down. Unless we slip into a recession you can expect the stock market to meander along for a while. If we do indeed continue to trade in a range bound fashion don’t feel the urge to make changes just for the sake of it. Lastly, turn off your television because every sensational interview with an analyst needs to grab eyeballs and predicting low volatility doesn’t fall into that category…

What is a Stock Market Correction?

What is a stock market correction?

Dear Mr. Market:

Today we’re going to talk all about you and how you whipsaw investors into panic with stock market corrections. What exactly is a correction anyway?

To some this sounds like a simple question; to others, and judging on how they act with their investing decisions, it’s clearly not.

By definition a bear market is one that has stock prices falling by 20% or more and lasts for at least two months. A stock market correction is much shorter and is typically fast in nature. Corrections often come on the heels of investor pessimism or after a bearish story that later is found to be a relatively meaningless event. In other words, corrections bring a whole different sort of emotion to the game than a bear market.

What’s interesting to know about corrections is that they occur Continue reading