Two More Indications a Stock Reversal Is Underway
Forecasting mountain weather is an extremely challenging exercise at its easiest. The climber’s life is hinged to a consensus of probable weather scenarios, while on a slab of granite big enough to generate its own weather from invisible systems of energy without warning. To say the climber advances with a back-up plan is an understatement, yet the determination to “rope up” or “hunker down”, remains a critical daily assignment. Investors, like climbers, also operate within a realm of probabilities, and from them must constantly make a forecast of price scenarios, and their financial lives also depend on those judgments. Good climbers understand the indications offered by cloud formations and seek the help of every weather factor before advancing. That example of discipline compels us as investors to consider two more indications that stock indices are reversing:
The S&P 500 just posted its first positive Trailing 12-Month Return in over a year. A mere 9 times in 73 years, including 2022, has this measure posted a year or longer of stock price declines. Following the 8 prior reversals, in every single case the S&P 500 moved higher over the ensuing year, and by an average percentage nearly twice that of all 12 month periods over the 73 year timespan.¹ A sample base of 73 years is significant, sample occurrences don’t exceed 100%, and twice the average return is noteworthy.
Stock indices have been climbing “the wall of worry”. This is phase one of a bull market, especially those following major bear markets, like in 2022. Recent polls and reports reveal stock sentiment among investors is the most bearish in a dozen or more years. A recent Gallup poll showed only 18% of investors believe “the best long-term investment” will be stocks, the lowest reading since 2011.² This indication is very comforting to those accumulating shares of great businesses at this time, given the extraordinarily counter-intuitive nature of the stock market, and the average investor’s failure to understand that dynamic.
We can add these two additional indicators to the stock market “positives” identified last week: probability of a rate cycle peak, decelerating inflation, S&P 500 above its 200 daily moving average (DMA), historic sideline cash, and the history of post, mid-Presidential election years for stocks. Don’t forget rules have exceptions. No indicator is perfect or can be trusted alone. Indicators are like truth, which is supported and affirmed by other truths, which are all agreeable. The scales of probability seem to be suggesting to Prudence that stock market positives now decidedly outweigh negatives, but stay vigilant, and watch for the additional indications streaming in.
Think about it, Shaun.
“Every prudent man acts with knowledge, but a fool flaunts his folly.” ~Proverbs 13:16
“In the business world, the rearview mirror is always clearer than the windshield." ~Warren Buffet
1 Stansberry Research, Daily Wealth, “Stocks Turn Positive, With More Gains to Come”, by Brett Eversole, June 8, 2023. 2 Stansberry Research, Daily Wealth, “A Changing of the Guard in Investment Sentiment, by Brett Eversole, June 6, 2023.
The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.
All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
https://www.fivestarprofessional.com/spotlights/90982
Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.