Investor’s Real Risk is a Secular Bear Market: Hard to Fathom a Secular Bear is Forthcoming

Interesting stat from Bespoke from this week’s Bespoke Report: the SP 500 closed 4.4 standard deviations below its 50-day moving average on Friday, 8/21/15.

Another note from Bernie Schaeffer’s personal blog of Schaeffers Investment Research out of Cincinnati, is that last week’s volume was actually lower than the prior week. Bernie didn’t think that the selling in the major US equity indices was over, or put another way, that the conditions were present to indicate a longer-term market bottom.

So what is a girl to do, when the media is filling you with fear and trepidation, and as one client once shouted at me, “market opinions are like vital body parts, i.e. everybody has one !”

My own opinion, is that the US stock market, particularly the SP 500 is facing slim odds of a secular bear market, like we saw from 2000 – 2009.

While having lunch with a friend today, who stopped day trading and market timing his 401(k), he basically said “i don’t need this money for 25 years, I don’t know why i am stressing about it.”

Any my response was that, that was pretty smart thinking.

Here is the April link from this blog, that talks about rolling SP 500 returns, and the prospects of losing money or losing capital like was seen from 2000 – 2009.

  • We don’t have the market cap concentration that market the top for Technology in 2000 and Financials in 2007;
  • We certainly don’t have the euphoria of sentiment that marked the March, 2000 peak, as bullish sentiment per AAII (and quoting Bespoke) is that “bullish sentiment” has now been below its bull market average of 38% for 21 straight weeks;
  • We dont have the valuation issue with the SP 500 that we saw in October, 1987, or anywhere close to March, 2000 with the SP 500 closing at less than 16(x) the forward estimate this week;
  • The only sector that could remotely be considered “frothy” is HealthCare and biotech, and Healthcare is still roughly a 15% market cap and earnings weighting in the SP 500;
  • The SP 500’s 5.69% decline last week has occurred 4 times during this bull market, and 28 times since 1980, and per Bespoke, the “average” median return over the next 12 weeks has been +4.95%.

A 20% correction occurred in 2011, which was probably a recession scare, so corrections can happen at any time. We had an 8 – 10 week, 9.5% correction culminating in October, 2014.

My own opinion is that the odds or probability of a secular bear market is quite low, but be careful out there.

 

 

 

 

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