Written by Nathan White, CFA
Much of our quantitative work indicates that the stock market is setting itself up for an intermediate term rally that would start to develop over the next few months.
This rally could propel the S&P 500 into the 950-1000 range.
Negative sentiment is running wild with nearly everyone giving into the bear. Emotions are running high. This is a contrarian sign.
One catalyst to begin a rally is to get the White House and Congress to stop giving daily speeches and TV appearances!
It is flat out amazing to see the markets sell off every time the President speaks. The recent sell-off in the markets has been caused by all of the uncertainty created by the government.
NO one knows what the rules of the game will be or what to expect and so the markets continue to pull back. The markets are pushing the government to act and create some sort of credible end game to the financial/credit mess. Government inaction is causing the markets to price in all bad scenarios with the banks.
In light of the current choppy conditions, our Top Flight Portfolio still holds some defensive sectors such as Conservative Staples and Health care.
We have steadily been moving the portfolio towards those areas that would do best in a broad market rally such as Technology, Materials and some emerging markets. If a bull trend develops we will increase our allocation to these areas. If the bear trend resumes, we will take off the more aggressive portions of the portfolio.
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Written by Dave Young
President of Paragon Wealth Management
photo by abraaten
Investment markets represent psychology in motion.
In an effort to stay on the right side of that motion we are constantly evaluating all of the factors that affect investors. Those factors are many and varied but in include good and bad “news”, media spin, company announcements, economic data and most recently the “political” impact.
For the past six months we have had more political impact on the markets than any time I can remember.
I try to look at all political news objectively and evaluate it only on its market impact. Unfortunately, I think that both political parties often act in their own best interest rather than the people they represent.
The stock market sold off initially, through September, as a result of the credit, banking and real estate crisis. It was a fairly normal bear market at that point. Then, as the negative political rhetoric intensified and the media amplified it we saw extreme fears enter into the financial markets. As it became clear that Barack Obama was going to win the election, the markets sold off further in anticipation of the uncertainty created by a change of leadership. That market sell-off followed the pattern of previous election years when the incumbent party loses.
After the election, the market stabilized and there was an expectation that Obama would move from the left to the center. Also, there was an expectation that the media would begin to spin more positive news once their candidate of choice was in. Those would be positives for the market.
Unfortunately, the “stimulus” package that was recently passed changed those expectations. Prior to its passage Obama and company pledged CHANGE.
They promised transparency and bipartisanship. They promised a stimulus package to “jump start” the economy. This was advertised as “change we could believe in.”
With no time allowed to read or review the bill, it was jammed through congress for approval.
It’s hard for anyone to take a promise of transparency seriously when the bill is pushed through so quickly that it is not even allowed to be read.
Its passage re-defined the word “bi-partisan” when only three of the republicans (out of a total 219) voted in favor of the bill. The bi-partisanship promised was ignored and taken even more extreme and negative levels than the previous administration.
Based on its contents, the “stimulus” appears to be no more than an excuse to pass an extreme government entitlement spending package.
Unfortunately, only about 20% of this bill can be characterized as stimulative. Most taxpayers wouldn’t spend a dollar to get 20 cents of value. The market voiced its opinion with a drop in the Dow industrials of over 400 points since the stimulus bill passed.
The good news is that the market will recover eventually. In the past 100 years we’ve been through 34 bear markets, which were followed by bull markets.
The stock market and economy have always recovered in spite of… not because of the actions of politicians.
Written by Dave Young, President
photo by nieve44/laluz
At the beginning of the year, most investors are interested to hear a market forecast or a prediction of how the stock market will be throughout the year. The truth is no one can predict the future for the stock market or anything else and be absolutely 100% sure it will turn out that way.
There is no shortage of self-proclaimed market prophets. You can find them in investment magazines, newspapers or CNBC. Although they can be entertaining, they provide no real investment value. They do not help anyone make money. In fact, investors who follow them are more likely to lose money than to gain it.
The way the forecasting game works is that the market guru, seer, pundit or executive continually makes forecasts in an attempt to gain public attention. By sheer luck maybe half of these predictions are proven right-meaning that at least half of them are wrong. On the occasions when the forecast turns out to be correct, the forecaster plays it up.
Those many forecasts that don’t pan out (and those many investors who are financially hurt by them) are never spoken of again.
In truth, you’re more likely to get an accurate prediction of the future by listening to the weather forecasters. At least they inflict less damage when they’re wrong.
Yet despite mountains of data that show how ineffective the celebrity market forecasters are, they continue to make their predictions and many unfortunate people continue to base their financial decisions on shoddy, unproven advice.
Market professionals are not alone in their inability to forecast market behavior. Economists do just as poorly. Every six months the Wall Street Journal prints the results of a survey of leading economists who predict the level and direction of interest rates for the coming six months. 55 high profile economists currently participate in this semiannual forecast.
You’d think such prestigious economists in such a high profile newspaper would know what they’re talking about, right? Nope.
If they’d just blindly guessed they’d have a 50/50 chance, but their actual educated predictions turn out to be much worse. And these are the best the industry has to offer!
So if forecasts are a waste of time, then what does work?
I am convinced that investors will only succeed when they are able to remove emotion from the investment process. Gut feelings are not a reliable investment strategy– even the gut feelings of so-called experts.
Oftentimes, successful investing requires you to act in a way that is contrary to what you “feel” is right. For example, several of our models measure the overall optimism or pessimism in the investing public. When optimism is high we know that there’s a lot of risk in the market, and it’s likely that the market will decline. Likewise, when optimism is low and most investors think that things are really bad, that is usually a great time to invest. This pattern has repeated itself for years.
We take great care to ensure that all of our investment decisions are based on solid, proven models, not hunches. Our portfolio allocation models tell us how much we should be invested based on measured risk in the market. We run the models daily to determine the most effective percentages of investments and cash holdings.
Once we’re in the market, our portfolio focus models tell us where we should be invested. We constantly track all areas of the equity markets on both a macro scale (small cap, mild cap, large cap, value, growth, international and emerging markets) and a micro scale (individual industries, sectors and countries).
The bottom line for Paragon Wealth Management’s clients is that they can be confident that their portfolio isn’t being managed by some celebrity market fortune teller. Our quantitative models enable us to impartially measure what is actually happening in the market and how much risk there is at any point in time. We constantly evaluate the models to determine how effectively they are working. In my opinion, this is one of the best ways to invest for long term success.
To learn more about our investment strategies at Paragon Wealth Management, visit www.paragonwealth.com or call 801-375-2500.