I usually like to write a couple times a week, but we’ve had some logistical problems last week. I didn’t even get one article published. I’ve been busy with a long-distance, condo turnover and multiple Halloween parties for the kids. To top it off, it rained all last week. The change of season always gets me down.
The good news is that I have this article and half of another one already done.
Last week, Marketwatch had an article that claimed we can expect markets to go up another 5% by the end of the year. It’s Monday as I write this and the market has already realized a percent or more of that it seems.
Why did Marketwatch’s Mark Decambre believe that the markets will go up another 5%? Did he have insight into further Fed rate drops? (No likely insight, or drops.) Did he have insight into the China tariff situation? (I don’t think Cassandra knows what’s going to happen there.)
Decambre has past performance to go by. That’s part of the warning that they always tell investors not to use – “Past performance is no guarantee of future results.”
It’s not your typical past performance, though. In this case it uses data going back to 1950.
The criteria? Look at when the market has gone up 15% YTD by the end of October, the market generally continues to go up another 5.55% on average. That sample size consists of 15 years.
Why Should We Believe The Market Will Go Up?
I’ve already highlighted a few reasons why we shouldn’t believe in this indicator: past performance, China, no more Fed rate prop ups. Let’s think of a reason or two why it WILL go up.
There’s an economic theory that you should Sell in May and come back in November. There are a number of research papers on whether that is valid or not. I don’t have the space to cover it here. I will say that it passes my “smell test” because I can understand why the markets wouldn’t go up much during the lazy summer months.
Perhaps just as importantly, by coming back in November, you get to capture all the gains from all the good news of consumer spending for the holiday season. You don’t get a lot of companies coming out and saying, “We expect our sales to do terribly” in November. They’ve usually already warned that in October, or are gathering data through the sales season to make the determination after the New Year. It certainly doesn’t spread any good holiday cheer to give warnings during the holidays.
Finally, if the market has done well through October, the economy is likely doing well (or being propped up enough to appear well). Maybe “an economy in motion tends to stay in motion unless acted upon by an outside force?” With people making holiday plans, maybe there’s no outside force to act upon it.
Did I convince you one way or the other? Are the markets going up or going down over the next couple of months?
I know that I’m unlikely to make any major investing moves either way. The only move I’ll make (as I always do) is to shift my allocations a few percent more to bonds or more to stocks when I feel that the markets are too expense (sell stock, buy bonds) or too cheap (sell bonds, buy stocks).
What do you think? Let me know in the comments.