Is This The Last Great Buying Opportunity In The Current Bull Market?
In short, I believe the answer is YES! This is likely your best opportunity to “buy the dip” before the market moves meaningfully to the upside.
Since 2009 I have been saying this market could and likely will go higher than many people believe possible. For some, the market is already beyond believable.
I continue to believe this market is poised for another big run to the upside and if you are not using this market dip to add to your investment positions you may very well miss out on the biggest gains ahead.
Yes, some will say this is a bold statement for me to make, and making predictions about future unknowns is not something I like doing because nobody knows what the future holds.
But history is on our side…
So why do I feel confident in my bullish view of the stock market?
It is because of the facts of the stock market as I see it. Nearly every evening I spend an hour or more reading research reports. Reports that both challenge and also support my view of the markets looking for new opportunities and risks that could impact our investments.
I know even in a long-term bull market there will be dips. I know on average we should see a 5% drop three to four times per year. I know we should see a 10% drop once per year and every three to four years we are likely to see a 20% drop.
As I write this update, US Large Cap Stocks are 9.2% below their all-time highs, Mid Cap Stocks are 12.6%, and Small Cap Stocks are 15.9% below. These are within those normal ranges I shared above. This lead to the question:
Is it better to sell on those dips or buy?
History shows us it is better to buy on the dips as long as the long-term bull market trend is intact. You don’t have to buy the absolute bottom, you just have to keep putting money to work.
Here’s the Long-Term Market Trend: (When the BLACK line is above the RED line, it signifies we are in a long-term bull market)
As an investor, our actions have the biggest influence over our future success. We control the three biggest factors.
These three influencers are: how much money you invest, where you invest it and how long it is invested.
If you continue to invest your money on a regular basis, you make sound investment choices and leave the money alone long enough for the investment to grow, chances are very high you will have a favorable outcome.
So What Is Going On With The Stock Market To Make It Go Down?
When the stock market goes down we all have a strong desire to ask, Why?
I could give many reasons, and all of them have some influence over the market and more importantly over the mindset of investors. This second point is very important – mindset.
You see, for casual observers of the stock market, a simple explanation of inflation fears, a slowdown in China, trade wars, etc. will suffice for a reason to why markets are down and are mostly harmless in nature.
For investors, this simplistic explanation can be quite dangerous.
This is because our impulsive response to bad news can cause poor investment decision making and leads to panic or fear-driven decisions. It’s the reason many investors buy high and sell low, the exact opposite of what history suggests is a favorable strategy.
Having said this, the reward for being a long-term stock investor does not come without price swings and some stressful moments.
As Warren Buffett says, “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful!”
For all of these reasons, I continue to believe investors should be putting money to work while the market has pulled back.
You see, market tops occur when there is greed (not fear) in the market. Tops happen when it is easy to make money when your Uber driver is dishing out the stock tips. That is when it is time to get conservative.
I can tell you with confidence, I rarely get phone calls from investors wanting to be more aggressive in today’s market, but I certainly still get calls of concern.
This is true across the board. Take a look at this chart showing the Fear vs Greed Index. It further illustrates the fear in the market, and also helps us see the opportunity.
So what should long-term investors do now?
For most long-term investors that are already fully allocated in the market, stay the course. For long-term investors with money sitting on the sidelines, this may prove to be your last great chance to buy into the current bull market.
Don’t just take my word for it — Look at history. Historical data suggests now would be a good opportunity to buy. In a recent article from Pension Partners, Charlie Bilello, his research highlighted the corrections since May 2009.
Here is what he pointed out:
The S&P 500 is only down 9.8% from its recent all-time high, just above the average of the 22 prior corrections since March 2009 (-9.3%). All of these corrections had fear-inducing explanations associated with them that seemed like the end of the world at the time. All were soon followed by new stock market highs.
Closing Thoughts
It is okay to be cautious, but not fearful. We are entering one of the best seasonal market time periods.
According to strategist, Tom Bowley, who writes about the market over at StockCharts.com, he shows that starting October 28th, we enter one of the strongest time periods for the market.
Here’s what Tom said:
Historical Tendencies
October 27th has historically been the day where many stock market bottoms have formed. Bullish historical performance after that date is rather astounding. Let’s take the Russell 2000 as an example. Since 1987, the October 28th through November 6th period has produced an annualized return of +76.50%. Here are the annualized returns by calendar day:
October 28th: +195.82%
October 29th: +70.84%
October 30th: +0.87%
October 31st: +169.49%
November 1st: -80.73%
November 2nd: +144.58%
November 3rd: +124.59%
November 4th: +48.78%
November 5th: +25.76%
November 6th: +51.12%
These numbers are not being shared to try to guarantee that a bottom is forming. The stock market can do whatever it wants to do. The purpose here is simply to educate. The historical tendency is for significant stock market gains beginning on October 28th.
One final note. Historically, there is no better intermediate-term period throughout the calendar year than October 28th through January 19th. We enter that period on Monday.
With every market commentary I write you hear me say when the market facts change, so shall we. Right now, the long-term facts continue to support the bull market.
It is an aging bull market? Yes.
Are we likely in the later stages of the bull market? Yes.
Is the market exhibiting classic signs of recession and the end of the bull? Not yet.
We continue to follow our investment thesis. We continue to buy solid investments, we are executing if or when our protective stop-losses say to get out, but we continue to seek opportunities for future growth in this market environment.
If you would like to discuss your specific investments or learn more about our outlook for the market going forward, please give us a call at 919-787-7325 or 800-722-5862.
Sincerely,
Kern
