Sarah, two articles on seasonal patterns in one post. Good stuff.
Since we have yet to go through a bear market (ref: October is a Bear Killer), it is a bit early to discuss when it is going to end. But October is often the summer lull or fall correction ender, so there is hope. The end of the year is historically the strongest time for the stock market with one exception - once a bear market is underway. This makes the question of whether we are in a protracted correction or bear market important, but in either case we could see a fall rally.
I share my thoughts on Mark's article "Seasonal Return to the Markets" in MarketWatch's Mark Hulbert on Seasonal Timing Strategies if anyone is interested. My own strategy evolved out of Sy Harding's so his writing about it is of interest to me. As Mark Hulbert's market timer tracking service (the Financial Digest) highlights, it is one of the few strategies to beat the indexes over the long term.
While I enjoy reading Mark Hulbert's take, I am not a conventional thinker and often see things a bit different. In the study on why bad news is good for the markets, I would say the reason the market responds positively to weak jobs during a bull market is because the market assumes it ensures monetary policy will remain easy longer - a plus for the financial markets.
Since the Fed has not normalized monetary policy since the great recession, this historical finding may not apply if we enter a recession. I would say we are in the most interest rate sensitive market ever, so even recession level economic news will be market positive for our easy money addicted financial markets.
It is also important to remember in normal times the stock market is considered a leading indicator for the economy. The fact that the market is down and the economic conditions have become borderline increases the odds we are near a recession. Economic reports only explain why the stock market went up or down in the past and do not tell us what it is going to do in the future.
But we are not in normal times thanks to our activist central bankers. The US business cycle has been trumped by a global credit cycle. The economy has become secondary to the global financial conditions. We need to open up our investing aperture beyond just the economy and the seasonal tendencies of the market. And I do not see anything bullish from a long term technical stand point. If anyone does, please share.
Thanks for the perfect lead-in Sarah,
Michael
PS. You are always welcome to read my current perspective on the TSP charts and what is driving the markets today at TSP Smart Investor Perspectives.
Links:
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Posted by: Michael Bond <michaelhbond@yahoo.com>
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