Sunday, January 28, 2018

Beware the Headlines!!

If you've been following us here on the blog you know that our analysis continues to paint quite the bullish picture going forward. And you know that we don't do hunches, we don't make predictions, we simply weigh the data and consider the go-forward probabilities. And, most importantly, we remain open to all possibilities. 

That said, while, thus, we won't call it predicting, we have been warning you about volatility. But that's like warning someone that it often rains in springtime. Or that even summertime brings the occasional shower. The reason we make such a point of it is that over the years we've found that many individual investors simply hate the rain (volatility). So much so that it freaks them out; as if the occasional sprinkle, or springtime downpour for that matter, is a signal that a great flood is imminent. While, in truth, the market is very much like nature; corrections, like rain, can serve to calm what could ultimately become overzealous activity. They essentially cool the ground and allow for healthier growth to resume once they've run their course. 

As we suggested in this week's message, some of our clients are growing increasingly skeptical about the likelihood of the stock market continuing its record-setting ways from here. We get it, especially when so many headlines like the following are showing up in all corners of the financial media:
Goldman Sachs Warns Of S&P 500 Correction Coming
We actually like it, and we think its true. Just like we think a rainstorm is coming this spring, or tomorrow, or the day after, or the day after that. But so what? It's normal!

The problem with headlines of this sort is that they're often followed by commentary that suggests corrections are something to fear, to fret over and to avoid. 

Here's what was beneath that headline:
... on Monday morning, Goldman cross-asset strategist Ian Wright cautions in his latest Kickstart letter that the S&P is now rapidly closing on the longest period in history without a 5% correction, and that as of today, only 4 times in history has more time passed without a 5% correction.
Do you feel the stress in that paragraph? Mr. Wright "cautions" in his letter that it hasn't rained in awhile. Again, so what if indeed we're on the verge? Or, better yet, thank goodness!! 

I wonder if anyone acted on his warning. I mean an investor would certainly feel a 5% pullback in his/her portfolio's value. He/she might do the math and say "geeze, that's a lot of money!" Perhaps, therefore, he/she heeds the warning, sells, and remains poised to buy back as soon as the S&P's dip hits 5%. Sounds like smart investing, right?

Well, not that time! The above article was published on September 25th, 2017. And, as you may know, there's been no correction. In fact, the S&P 500 is up over 16% (now do the math) from the date of the article. So let's hope it wasn't enough to rattle too many folks out of their portfolios! 

Oh, but I have to wonder when I read the next sentence: 
The warning follows similar caution from Goldman's chief equity strategist David Kostin who as discussed yesterday, has a very bleak outlook for US stocks, and expects the S&P to slide to 2,400 by the end of the year, remain unchanged throughout the end of 2018 and rise just 100 points by the end of 2019.
Folks I can hardly contain myself!!! Not being a follower of Wall Street's finest I couldn't have told you who Goldman's chief equity strategist is. But I will tell you that the gent who's, well, too many adjectives to choose from enough to make such definite predictions better be by far the wealthiest dude on the planet! Well, hmm, I've never heard of Mr. Kostin, and, I assure you, the WDOTP would never make such predictions! By the way, Kostin's just doing what he gets paid -- handsomely I suspect -- to do...

FYI: The S&P 500 is presently 19.7% higher than where, last September, Mr. Kostin predicted it would end 2017, and 2018 for that matter. All the while our eagle (follow the link if you missed our eagle analogy) looks healthy enough. I.e., while we're certain there will be some strong headwinds to buck going forward, at this juncture (always subject to change) our bird appears to be up to the task.

(Grabbed the Goldman headline from Chris Ciovacco's weekly presentation)...

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