As the Rolling Stones sang in 1964, “Time, time, time is on my side, yes It Is.”
From RBC: The Daily Grind. Much is made of the stock markets daily direction, but watching the movement too closely likely makes it more difficult to tell what the trend may be, but the allure and excitement of the process makes it an irresistible thing to watch for some investors. Often it seems that the market changes direction on a daily basis, with the reason for the move sometimes being a pretty weak excuse. This is because the daily market moves are driven more by the emotion that gets tied to the daily news rather than the trend of the fundamentals that determine the long-term success in investing. If the markets moved only in relation to the facts, they would be easier to understand, but once you throw opinion and emotion into the mix, it gets very confusing and uncertain. The table below illustrates how the daily market movement is close to a coin-toss in which direction that it may be as the emotion of investors is a lot harder to predict than the market itself, while the longer-term view generally supports the theories and benefits of a long-term investment plan.
Percentage of time the S&P has been up over the past 65 years:
On a Daily Basis: 52.9%
On a Weekly Basis: 56.4%
On a Monthly Basis: 59.3%
On a Quarterly Basis: 64.3%
On a Yearly Basis: 73.0%
In other words, investors have a 53% chance the markets will be up tomorrow but a 73% chance markets will be higher this time next year.
From a technical viewpoint, the S&P 500 has trading support at 1905 to remain in the uptrend with resistance at 1950 to 1980. This is a pretty tight support range of only 1.8% down for the charts to turn negative again on the short term.
Reviewing the Fair Valuation of Morningstar, 13 of the 17 Sectors and Indexes clocked in new 52-week lows in Jan. While the market bottom may not be in quite yet, the precipitous decline over the past 3 months has been a cleansing move that has pushed many stocks into a buy range. For example, financial stocks are traded at a 23% discount to their Fair Value, a far better risk/reward than last Oct when they traded at Fair Value.
As reiterated before, remain watchful and nibble with positions in the most favorable sectors – Financials, Energy, Cyclicals, and Basic Materials. While the market is in a negative trend and needs to rally upwards of 5% to 8%, current prices have a 73% chance of being higher this time in 2017.
Companies offering stable and secure dividends add not only to overall long-term investment returns but current income that can offset some current short-term market weakness.
This article first appeared in the Feb issue of Guiding Mast Investments. Thanks for reading, George Fisher