After a period of mostly downbeat action, a risk-on mood has taken shape Tuesday, after Goldman and other big corporate names sprinkled around some earnings cheer.
Some investors may still be rattled by last week’s mini meltdown. Perhaps in a bid to calm any uneasy future retirees, Charles Schwab SCHW, +1.24% has been steering clients to a chart from earlier in the year, which shows how three types of investors fared during the past four decades of investing.
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There is the stalwart, who stayed the course on his investments no matter what; the reactor who pulled out money in 2008 and stayed out (depicted in red) and the waffler (blue), who moved money out after any downbeat year. The latter two kept saving 10% of their salary. Guess who came out ahead? Yep, the stalwart:
Schwab
The stalwart wins out
More of that keep-calm-and-invest-on advice comes from our call of the day, provided by Urban Carmel, the writer behind the Fat Pitch blog and ex-president of UBS Securities in Asia.
“This might feel like the start of a bear market, but that is the least likely outcome,” says Carmel, who suggests investors get ready for higher prices in the weeks and months ahead.
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Supporting that perspective, he points to a still-robust U.S. economic expansion and macroeconomic data that have historically weakened before a final equity top, contrary to what many investors might think. Based on that, he doesn’t believe that the stock market will hit a peak (implying a pronounced downturn is imminent) before the end of 2018.
Carmel backs up his view by pointing to momentum in the S&P 500, breadth and sentiment washing out, the latter of which has seen investors flooding into ETFs that bet on equity falls. He says this chart from Dana Lyons at J. Lyons Fund Management as evidence of that:
Still, Carmel says investors should stay alert as the recent selloff hasn’t entirely run its course.
Although, he believes that stocks are set to rise, a “topping pattern” under way for the S&P 500, in which prices weaken before they reverse, is one piece of evidence that Carmel references to support his call for near-term caution. That the broad-market index has just logged a three straight weeks of declines—something that has happened 20 times since 2003—also underscores the market’s fragility, he said. As the following chart shows, in past times that the S&P 500 suffered such a losing streak, the low was eventually retested within the following seven weeks:
Urban Carmel
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Back in May, he was cautioning against seasonal selling, warning that investors could be buying back at higher prices in November. That’s a call that proved to be spot on, with the S&P 500 up by about 4.6% since that point.
Source: marketwatch.com | Original Link