Here's some good news about the market! Based on market history, the market dropping in October is nothing to worry about. It's merely setting itself up for a possibly monster year-end rally. That's the word from Mark Hulbert:
By dropping in October, the stock market creates the preconditions for a significant rally through the end of the year. This year appears to be quite closely following at least the beginnings of that script.
How big a rally? The Dow over the last 120 years has gained an average of 6.8% from its lowest October close through Dec. 31. On an annualized basis, that’s equivalent to nearly 40%, or four times the stock market’s long-term average.
On the other hand, here's some bad news about the market from HSBC, one of the largest banking and financial services organizations in the world:
In late September, Murray Gunn, the head of technical analysis for HSBC, said the stock market's moves looked eerily similar to those just before the 1987 stock market crash. Citi's Tom Fitzpatrick also highlighted the market's similarities to the 1987 crash just a few days ago.
On September 30, Gunn said stocks were under an "orange alert," as they looked to him as if they had topped out. And now, given the 200-point decline for the Dow on Tuesday, Gunn thinks the drop is here.…"The possibility of a severe fall in the stock market is now very high."
But we know that bearish opinions like that appear in the financial media all the time and are often completely wrong. Here's one from last January 20, announcing emphatically (but prematurely) that the bear market in stocks has finally arrived:
Veteran investor Mark D. Cook, who pointed out red flags a year ago, feels vindicated.… Finally, stock prices confirmed what he saw in 2014: We’re in a bear market and about to go over the cliff, he says. [I asked Cook] "Why do you still believe we’re in a bear market?"
First, the oil and gas situation is a huge problem, and it will continue. We’re not getting bounces. Instead, oil investors just want to sell. The second problem, and it’s just getting started, is China. China is like an athlete that twisted his ankle and needs time to heal. If the ankle doesn’t heal, it will get worse, and that’s what is happening right now.
Well, about that bear market and those oil and China problems. The S&P 500 is now almost 15% higher than where it closed the day the above opinion was published on MarketWatch, oil (per USO, an oil-price based ETF) is 37% higher, and China (per FXI, a China-market ETF) is 26% higher. So, once again, forecasters have been early in their predictions of an imminent bear market. (Of course one is coming eventually, we just don't know when.)
It's hard to know just what to expect from the changes that are coming. How should you prepare your portfolio for the coming elections? Or, should you just do nothing other than follow your plan?
As we get closer to Election Day, the most common question people ask me is, “What is the election going to do to my investments?” This is usually followed by: If Hillary Clinton and Donald Trump gets elected, “don’t you think I should get out now while I have a chance?”
I’ve witnessed these same concerns in other presidential elections over my 35 years as an advisor. People are always worried that if the candidate they dislike becomes president it will be devastating for the markets and their portfolio.
Are there some precautionary measures you should take to protect your retirement portfolio from an Election Day disaster? Let me share what I am doing in my personal portfolio to prepare for the worst: nothing. I don’t believe that whether Clinton or Trump wins will make any long-term difference to a diversified investment portfolio or the U.S. stock market. There is no past evidence to suggest otherwise....
Given the unprecedented nature of this particular presidential election, it’s not surprising that investors’ sentiments are more intense than normal. That doesn’t mean their fears are any more valid than in other elections. As usual, the best way to election-proof your portfolio is to leave it alone.
Works for me. What about you? Care to share what precautions you're taking and what has prompted you to do so?