Monday , 20 November 2017


Stock Market to Continue Onwards & UPwards – Here’s Why

Too often investors…focus on the negative, lose confidence in stocks and, as a result,investing2 they can miss great bull markets… I believe when it comes to finding investment opportunities…it’s all about both monetary and fiscal policy….[As such,] I encouraged investors to follow the money. With that in mind, here are two of my favorite charts that I believe demonstrate how investors can do exactly that.

So says Frank Holmes (usfunds.com) in edited excerpts from his original article* entitled Two Charts Illustrate How to “Follow the Money”.

[The following article is presented by  Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here – register here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]

Holmes goes on to say in further edited (and in some places paraphrased) excerpts:

Below are said charts:

1. Global Manufacturing Activity

Manufacturing data among numerous countries has recently been moving in the right direction. For the month of July, the JP Morgan Global Manufacturing Purchasing Manager’s Index (PMI) stayed above the three-month moving average for the second month in a row. Global output continues to expand, rising to 50.8 from 50.6 in June.

Domestic Equity Market - U.S. Global Investors click to enlarge

The PMI…[is more than just] a gauge of economic well-being for the manufacturing sector. Last month, after the PMI initially crossed the three-month reading in June, I explained that this “crossover” has historically signaled higher prices for many commodities [stating that,] using the SPDR S&P Metals & Mining ETF (XME) as an example, since the beginning of 2009, history suggests that one month after the crossover, 60% of the time, the XME has gained an average of 7.4%. Consistent with its historical pattern, in July, the XME rose 7.6%.

There may still be room for these stocks to grow, too, as the next two months look promising for metals and mining companies. If you look at the three-month average after the “crossover,” 80% of the time, the XME gained 12.6%.

2. Presidential Election Cycle

Last fall, I said that all the excess money in the system, compliments of the Federal Reserve’s policy decisions, helped the S&P 500 Index to climb significantly. In fact, President Barack Obama’s first-term presidential cycle beat the average of all other presidential cycles going back to 1929. You can visually see this substantial growth in the red line below.

Now, a few months into his second term, Obama’s presidential cycle remains remarkable, as stocks continue to climb a wall of worry. The yellow line shows this upward trend, an outcome of the continued easing policies in the U.S.

At U.S. Global, we believe that government policy is a precursor to change, and the change appeared to be significantly positive for the S&P 500. To me, this chart indicates that many investors who have been following the Fed’s quantitative easing trail have found a very profitable path in U.S. stocks.

Domestic Equity Market - U.S. Global Investors click to enlarge

Looking Forward: Positive with a Chance of Rally?**

The S&P 500 Index closed the month of July with a 4.9% gain. What does this increase mean for the next few weeks and following three months? Research suggests markets continue to rally.

Since 2009, there were 13 individual months the S&P 500 gained at least 4%. Around 85% of the time, the index showed further gains, averaging 2.3% and 5.4%, respectively, for the one-month and three-month time periods.

S&P 500 Positive in July. What Does History Show Us?
Dates: S&P 500 +4% Or More In 1 Month 1 Month Change What Happens In Following Month What Happens In Following 3 Months
Source: Bloomberg
July 2013 4.9%
January 2013 5.0% 1.1% 6.6%
February 2012 4.1% 3.1% -4.1%
January 2012 4.4% 4.1% 6.5%
October 2011 10.8% -0.5% 4.7%
December 2010 6.5% 2.3% 5.4%
September 2010 8.8% 3.7% 10.2%
July 2010 6.9% -4.7% 7.4%
March 2010 5.9% 1.5% -11.9%
November 2009 5.7% 1.8% 0.8%
July 2009 7.4% 3.4% 4.9%
May 2009 5.3% 0.0% 11.0%
April 2009 9.4% 5.3% 13.1%
March 2009 8.5% 9.4% 15.2%
Post-2008 Probability of Positive Returns 84.6% 84.6%
Post-2008 Average 2.3% 5.4%
1928-to-date Probability of Positive Returns 65.1% 64.7%
1928-to-date Average 0.9% 2.0%

The continued rally holds true even if you look farther back in history. Since 1928, which is the year containing the earliest available data from Bloomberg, there were 215 times when the index gained at least 4% in a month. Even then, about 65% of the time, stocks saw an increase. The 1-month and 3-month returns were 0.9% and 2.0%, respectively.

Conclusion

Analyzing historical market trends can help investors take advantage of market cycles, although keep in mind the past does not predict the future. It’s hard to simply brush off the prospective brightness, however, as jobless claims headed in the right direction and manufacturing data out of China, the U.K. and the U.S. were all better than expected this month.

With a forecast for sunny skies, make sure your portfolio is positioned to shine.

[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]

*http://www.usfunds.com/investor-resources/frank-talk/two-charts-illustrate-how-to-follow-the-money/ **http://www.usfunds.com/investor-resources/frank-talk/stock-forecast-positive-with-a-chance-of-rally/ (©2013 U.S. Global Investors, Inc. All Rights Reserved)

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