Economists, wealth managers, and financial pundits are notorious for offering two fisted explanations. The practice minimizes the chances of being wrong. On the one hand, for example, you hear that stocks will finish much higher with a Santa Claus rally. On the other hand, due to a year end retail reversal, you hear that new lows are in the near future. We will look at both arguments, but unlike others, I will share with you what you can do now to be prepared for the good, the bad, and the unforeseen.
Volatility has returned. Are your portfolios prepared?
The S&P 500 had its worst quarter in four years...
For the optimists, Brett Eversole and Rick Crawford in the Daily Wealth on November 17, 2015 assert, "Stocks could soar 14% in the next year." The pair go on to say, since "the S&P 500 increased 8.3% in October, which is the largest one month gain we've seen in four years, history suggests that big annual gains are the norm after a big monthly gain in the stock market." Now this is, of course great speculation, as no one can predict what the market will do.
There is a rather humorous, but certainly non-traditional economic indicator that some people find attractive. Of course, I am talking about the Sports Illustrated Swimsuit Indicator. In addition to being the magazine's most popular issue, as Brad Hoppman reveals on November 17, 2015, "there's a theory that if a model from the US is selected for the cover shoot, then the S&P 500 will outperform historic returns. Conversely, if a non-US model graces the cover, the S&P 500 will underperform historically."
With the domestic benchmark barely in the black this year, perhaps the optimists can breathe a sigh of relief knowing Hannah Davis, born in the US Virgin Islands, is the sign needed to see the S&P 500 outperform.
Right after the horrific events that took place in Paris recently the stock market enjoyed a very good day. Jim Cramer on CNBC, November 16, 2015 said, however, "Don't get cocky' it was a patriotic rally." The good news is many of the buyer's motives was to demonstrate to the those who perpetrated these acts that it will not impact them. But Cramer found some significant declines in companies that are linked to American manufacturing, along with basic industries like steel, metals, and mining. His major concern is the oil industry shuttering due to low oil prices and the government of China dumping steel around the world that may make it difficult for steel companies to survive the downturn. Weaknesses were also seen in retail too, with "Macy's now down 42% for the year, which is astounding for America's largest broadline department store."
The pessimists want to us to know that "Europe's 9/11" is a harsh reminder of the horrific geopolitical environment in which we live today. As if there wasn't enough to worry about, investors now get to grapple with the implications of worsening political and military instabilities. As Harry Dent put it in his November 16, 2015 message to his research subscribers, "Hunker down. Stocks and our economy have to fight the perfect storm of worsening demographics, a debt and financial asset bubble that has only grown bigger with more to deleverage, and now an acceleration of geopolitical challenges."
With ISIS warning that Washington, DC is next, and with what appears to be a thinly traded stock market, what's a poor investor to do?
- Make lemonade out of lemons via tax loss harvesting or selling securities that have experienced a loss. By taking or "harvesting' a loss, investors are able to offset income taxes on gains and income. This is not construed as income tax advice. You should consider the counsel of an experienced tax professional before implementing any strategy.
- Combine a variety of strategies, in addition to cash, bonds, and stocks. Look for non-directional strategies that can move in different directions than market trends.
- Pursue positive return targets with lower volatility over time.