It's an old saying, "As January goes, so goes the year." What can we see by looking at last year and how might we be better prepared for the good, the bad, and the unforeseen in 2016?
If you have been following my work here, you know how I see the US residential real estate market. In summary, if you think you might need the equity to serve another purpose, like supplementing that insufficient retirement account, now may be an appropriate time to put paint on that real estate pig and sell it. As the world turns, you may soon see people dying outpacing the rate of people buying homes, so as I showed you with an important chart, we won’t need new homes for years. You may want to consider selling now and get your cash so you can prepare for better opportunities to come your way soon.
2015 Wild Stock Ride
Let’s take a look at stocks first in 2015, then in 2016. When you look at your investment statements you have a lot of company. With great volatility, nearly 70% of investors lost money in 2015, according to Openfolio, an app that allows people to track their investment performance and compare their portfolio with other users, as reported 12/31/15, CNN Money. According to the same source and date the S&P 500 Index finished last year -0.73%, while the NASDAQ closed out the year with a solid 5.73%. CNN Money went on to say, “US markets had their worst year since the financial crisis. No wonder making money was tough.” As Charles Sizemore, CFA, put it on 1/4/16, “2015 was the year that nothing worked. Stocks, bonds, cash, real estate, commodities, none of the major asset classes made money.” Some observers suggest, this fact alone may be an indicator of another 2007-08 or worse, is in the cards.
Take a look around. People who did make money may have done some things that most investors didn’t. For example, the NASDAQ was influenced by growth stocks led by companies like Amazon and Netflix, according to Matt Coffina with Morningstar on 12/31/15. Individual stocks like Facebook, Apple, and Alphabet performed well last year.
January signals for 2016
With the DOW off -1.58%, according to MarketWatch on 1/14/16, the first trading day of 2016 wasn’t what anyone was hoping for.In the same article, Mark Decambre said, “There might be a bright side to Monday’s wild moves: According to Dow Jones data, in the years the Dow has fallen at least 1% to begin the new year, stocks have ended the year with an annual gain of 9.5%. Dow Jones statisticians, however, point out that the last three times the market has slumped at the start of the year—including 2000, 2001, and 2008—stocks saw a negative return of 15.7%.”
As Adam O’Dell, CMT, Chief Investment Strategist, Dent Research put it, “By my analysis, annual returns are nearly 70% stronger, (7.9% versus 4.7%) following a positive January. Plus, positive annual returns occur 75% of the time following a positive January, versus just 54% of the time following a negative January. That’s a huge difference in odds!”Source: MSN Money 1/4/16
Dent Research 12/31/15
You might like to pay particular attention to the average returns between February and April. O’Dell explains, “Following a positive January, stocks trade higher 70% of the time, producing an average gain of 2.7% by May 1. But following a negative January, stocks trade higher just 56% of the time and produce a lousy 0.4%.” Janet Yellen is fond of declaring the Fed makes “data-driven decisions,” so you now have data that may help you determine whether or not to get defensive. When I met W. Michael Cox who was the Chief Economist at the Federal Reserve Bank of Dallas, what I learned was buy and hold is no longer always good for capital gains. Investors may need to buy and sell to try and get ahead. Or let somebody do it for you. When Cox spoke it became clear to me that unlike the past 25 years, the road ahead may be a bumpy ride.
Your idea of a bumpy ride may be something like the tepid Mr. Toad’s Wild Ride at Disneyland. That might be another 2015. If 2016 turns out to feel like 2008 or the tallest vertical loop in the world, according to Wikipedia, the 160-foot drop, Full Throttle at Six Flags Magic Mountain, you might take this time to assess your risk factors and choose different strategies. I agree with John Del Vecchio, Editor, Forensic Investor, “While the winter is a seasonally strong period for stocks, I think a poor January earnings season, with December 2015 results being reported, could be the first domino that falls and causes stocks to lose a lot of ground and momentum in early 2016. So watch out.”
Exchanges in the Value Line Composite Index include the American Stock Exchange, the New York Stock Exchange, the Toronto Stock Exchange, and NASDAQ. The Geometric Index tracks the median index moves as if all stocks had an equal amount invested in them. S&P 500 is an unmanaged index of 500 widely held stocks. It is not possible to invest directly into an index. Past performance is no guarantee of future results.
Instead of the big names like Amazon and Google skewing our sense of the broader market, this chart weights all stocks equally. Pay particular attention to the blue line showing from 1/1/16-1/11/16 that the broader market of the “typical” stock is now down -21%, on January 11, 2016, which represents the stock market is in bear territory. As Harry Dent explained last week, “Amazon is up 120% in the last year and its price/earnings ratio is currently 870 times a 12-monty trailing earnings of $0.70. That’s insane!”
Dent offers this point of view, “It’s better to get out of a bubble a little early than a little late, as bubbles burst at least twice as fast as they build.”
If you don’t want to sit and take it the next time the grits hit the pan, allow me to encourage you to schedule time with someone who can help show you how you might be ready no matter what might become shock and awe.
The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.
All indices are unmanaged and are not illustrative of any particular investment. It is not possible to invest directly in an index. Past performance is no guarantee of future results.
Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Investors Advantage and NPC are separate and unrelated companies.