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I’ll tell ya’, an investor never gets a break. If the market is down, you’re worried about how far it down it will continue to go and if your money and your lifestyle are going to go down the drain with it. If the market rises like it has been doing for the past 15 months (actually for the past 11 years it’s been rising, albeit with some scary breaks along the way) you’re worried that we are at the top of the market and you’re going to lose those great gains you’ve made that just feel so good.
And there is no shortage of so-called experts writing articles with titles like “Here’s how to tell a bear market is coming” or “Bearish signs to watch for” or “New indicators that will help you avoid the next crash!”
Now I have been managing money for 40 years, and I can tell you there is NO way to predict the next move of the stock market, either up or down. I wish there were, but there just is not.
However, in terms of enjoyment and fun (if you find this stuff fun as I do) here are some of the latest entries from the world of investment experts.
The first is from Bank of America Securities (Formerly Merrill Lynch, which itself didn’t see anything coming in 2008 until it got wiped out from the mortgage crisis and, being essentially bankrupt, was bailed out by Bank of America. Bank of America Securities has come out with a list of 19 signals that act as bear market signposts, as they call it.
They say that in the past when more than 80% of these indicators are triggered, a bear market has occurred. And a bear market is defined when stocks fall 20% from their most recent highs.
According to them, currently, 63% of the bear market signposts have been triggered, up from 47% in January.
I can’t get to all of them, but here are few of the 19 that will give you an idea. I will post the link on the website so you can read them all if you wish.
Now I can’t read the full list, but I picked a few of them so you’ll get the idea. Also we’ll post the link to the article at our website so you can see the whole list for yourself.
Federal Reserve Raising Interest Rates
Rising rates means borrowing gets more expensive which can slow down the economy.
Low-quality stocks outperform high-quality stocks over a six-month period: Low-quality stocks are more speculative, so speculative beating safe stocks can be a negative indicator.
Lack Of Reward For Earnings Beat
Now what does that mean? Analysts forecast next quarter’s earnings. If a company surpasses the analysts’ predictions, it should get a boost in price. If its shares don’t rise, perhaps the market thinks it could be a peak in earnings.
Inverted Yield Curve
If short-term borrowing rates are higher than long-term borrowing rates, that’s evidence of an upside-down world, which if it lasts for a while could be a bad thing.
Rule Of 20
Trailing price-to-earnings ratio added to CPI is above 20: That’s a way of saying stocks are expensive, so future returns may be lower.
Now that I have looked at the serious side of this question, I want to talk about some other indicators that have made the rounds over the past 120 years
The Super Bowl Indicator
Whether or not the AFC wins the Super Bowl or the NFC, the Super Bowl indicator indicates a decline if the AFC wins and a rise in the stock market if the NFC wins the Super Bowl. The Kansas City Chiefs are in the AFC so “sell, sell, sell!” (Not really)
The Lipstick Indicator (similar to the Hemline Indicator)
The lipstick indicator suggests that when individuals feel uncertain about the economy, they turn to less-expensive vanities such as lipstick to improve their mood. Hemlines go down when people are feeling a little depressed and go up when it’s time to party. I went online to study the latest hemlines but, to my clueless eye, they seem to be all over the place. If you have a more discerning eye, maybe you can write to me and give me your opinion.
’Nuf said about that!
The Sports Illustrated Swimsuit Edition Cover Model Indicator
This has to do with the country the model comes from. When the cover model is not from the United States, the S&P 500 underperforms. As service to all of you, I checked the latest cover of the swimsuit issue and I can tell you that this indicator is obsolete because they have 3 cover models which they publish simultaneously depending where you are in the checkout line at Publix.
Speaking of Publix. Some years ago, when I was interviewed, I was asked the question about a new service at Winn-Dixie Stores. Winn Dixie had apparently set up Mutual Fund vending machines at the front of the store so after you’ve paid for your groceries you could buy or sell your mutual funds. So, I thought, great, while my ice cream is melting, I will make a decision standing at the machine as to whether I wanted small caps or large caps with my salad tonight.
I couldn’t believe what a stupid idea that was and was sure at the time that it must have been a signal of the top of the market.
There is an old saying that if the elevator boy or shoeshine boy (when there were such things) is giving you stock tips, it means it’s the top of the market because, literally, everyone’s invested, even the least informed.
I ran into this again around 2005 when I overheard a bartender tell someone about the real estate he was flipping and making a killing at. There were so many signs of ridiculous speculation at that time that I knew there would be blood on the streets soon enough. Could I bet on this? No, but I could stay away from the nonsense and alert my clients as well.
The bottom line is there are just 2 predictions: Direction and Time. You may be able to get the direction of the market right; but crazy, speculative markets can go on much longer than you expect and end up faking you out. Or you may get the time right that something will happen, but the direction of the move will almost always surprise you.
It all comes down to the flip of a coin and with those odds, do you really want to bet you and your family’s future on something so unpredictable? What is more predictable is that over the long run, the economic tailwinds we experience here in the US and the capitalist system that weeds out poorly run companies and rewards well-run companies will benefit diversified stockholders. You just have to wait it out. I wish that weren’t so, but it is.
So repeat after me: I will wait it out and invest over the long run, even though I wish it weren’t so.
Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. There are no investment strategies that guarantee a profit or protect against loss. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however, their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.