Skip to main content

Sound Advice: November 1, 2023

Are Stocks on Sale?

If history provides meaningful clues to help answer this question, the answer is probably yes.  Why?  For several reasons.

Although some folks will disagree, the reality is that the nation’s economy is in reasonably good shape.  Yes, there certainly was a period during the pandemic when inflation soared to the low double digits, but that time has passed.  The latest numbers suggest that the current inflation rate is between 3.5% and 4.0%, a range that would not be described as astronomical.

For a time, gasoline prices took off, but they’ve eased from above $5 a gallon to less than $4 a gallon in most places.  However one views the situation, the periodic gains in the cost of living are moving in the right direction.

So what’s the problem?  It’s interest rates, which the Federal Reserve has increased at an extraordinarily rapid pace to get inflation under control.  Judging by recent comments by the Central Bank, it appears that we are approaching a peak level, which may well be followed by an easing.

That, however, is not an immediate prospect, but the stock market tends to look ahead and respond accordingly.  When rates rise, market prices are usually weak.  When rates fall, market prices strength.

Even so, we are still dealing with serious geopolitical issues that more than muddy the waters.  The war in Ukraine is now moving through the latter part of Year Two.   Add the distressing developments in Israel and there’s plenty of bad news to rattle investors, which is why the impact of improving U.S. business prospects may be more than offset by troubled investor psychology.

In the short term, changes in investor psychology always have a more important influence on the stock market than the progress of individual companies or the economy as a whole.  But, both can cause wide swings in short periods of time.

Another thing to keep in mind is the seasonal pattern of the stock market.  Since 1950, more than two-thirds of annual gains have taken place during the first and fourth calendar quarters of the year.  There’s no guarantee that near-term results will continue that pattern, but in the wake of a weak September quarter it would come as no surprise if stocks started to regain upward momentum.

N. Russell Wayne, CFP

Any questions?  Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: March 10, 2021

The ABCs of Stock Picking After decades of analyzing stocks (and funds) and investing for clients, I'm happy to share in plain English what's involved, what works, and what doesn't.  Keep in mind the reality that successful stock picking is an effort to maintain a good batting average. In baseball, a batting average of .300 or better is considered quite good.  With stock picking, you need to do better than .600, which means you have many more winners than losers. No one gets it right all of the time.  It's not even close.  Wall Street shops all have their recommended lists and the financial media regularly hawk 10 stocks to buy now. Following that road usually is a direct route to disaster.  Don't be tempted. Let's begin with the big picture: The stock market goes up and down over time, but the long-term trend is up.  When there's a rally under way, everyone feels like a genius.  When the market hits an air pocket, though, with few exception...
Post a Comment
Read more

Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme   If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.   Our cousins in the UK would call this rubbish.   I would not be as kind. Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.   Indeed, most of these folks are looking for double-digit gains.   Only two expect stocks to weaken. In the last 30 years, the market has risen by more than 20% only 15 times.   The exceptional span during that time was 1996-1999, which accounted for four of those jumps.   What followed in 2000 through 2002 was the polar opposite: 2000:      -9.1% 2001:     -11.9% ...
Post a Comment
Read more

Sound Advice: January 15, 2025

Why investors shouldn't pay attention to Wall Street forecasts   Investors shouldn't pay attention to Wall Street forecasts for several compelling reasons: Poor accuracy Wall Street forecasts have a terrible track record of accuracy. Studies show that their predictions are often no better than random chance, with accuracy rates as low as 47%   Some prominent analysts even perform worse, with accuracy ratings as low as 35% Consistent overestimation Analysts consistently overestimate earnings growth, predicting 10-12%                 annual growth when the reality is closer to 6%.   This overoptimism can                 lead investors to make overly aggressive bets in the market. Inability to predict unpredictable events The stock market is influenced by numerous unpredictable factors, including geopolitical events, technological changes, and company-specific news.   Anal...
Post a Comment
Read more