Market tops and bottoms are tricky. We employ services to monitor specific aspects of the overall market and they each have a unique method of determining whether there has been a turning point in trend or if the change is only temporary. We do not base our analysis on what is being talked about in the news or forecasts by analysts about what GDP will be in the next quarter or what the next job report is going to say. By the time these things are made known, they are already discounted by the market. It is comforting to think that someone out there has a crystal ball and can know, beforehand, when prices have reached their lowest (or highest) level. We readily admit we do not have one nor have we ever encountered someone who does. We think it is more valuable to seek advice that is born out of the ability to step back, see the whole landscape, and make a decision based on many factors.
Presently, most of our research partners are saying that the surge in demand for buying stocks has not made itself known yet and, until it does, they cannot give an “all clear to buy” signal. From our perspective, a lot of things have fallen into place to suggest the bottom has been or shortly will be formed. One common thing that happens immediately after a bottom has formed is what Gary calls “Fear of the Tape.” The investor who has liquidated a large part of their portfolio in the decline seeks a comfortable point when it feels right to put money back in. But trading in a new bull market often brings a “things are going too far too fast” because the rally seems different than what one has been used to and it is difficult to mentally get back into the market. But if you think about this objectively, things must be different because you are starting from a much higher price level than the last time a low formed. Gary remembers in mid-1995 when clients were saying “A 1,000 point rally by the Dow Industrials in such a short time is unsustainable,” but the market proceeded to rally over 30% that year.
Short term, there has been an opportunity that has arisen from the sharp rise in short-term interest rates. It has caused the overall return on investment for short-term bonds to rise to an attractive level and for some clients this is an appropriate investment. As interest rates rise, the price of bonds currently available on the market go down. Clients will see the stated interest rate of the bond they bought is maybe 1/2%-2% but the price of the bond has fallen enough to make an additional 2%-3% if held to maturity (~4%). So, the overall yield on the bond, if held to maturity, consists of the stated interest rate and the capital gain that results from the face value of the bond when it comes due. This can be confusing, so we are more than happy to explain it further for those that wish.
Nothing has changed our forecast that the next leg of the bull market will be the most profitable anybody alive has experienced. Patience is key in letting this play out. Our intent is to have you participate fully in it.
If we don’t speak with you before Thanksgiving, we hope you have a great holiday and spend it the way your heart desires.
Gary and Dianne
This report is provided as a general market overview and should not be considered investment or tax advice or predictive of any future market performance.
Any security mentioned in this report may not be suitable for all investors. No investment mentioned in this newsletter constitutes a recommendation to buy, sell or hold a particular investment. Such recommendations can only be made on an individual basis after an assessment of an individual investor’s risk tolerance and personal circumstances. Past performance of any investment mentioned is not a guarantee of future performance. Statements regarding the investment concerns and merits of any company and fair market value computations are strictly the opinion of Marin Group. Employees of Marin Group and Marin Group clients may have positions and effect transactions in the securities of the issuers mentioned herein.