Is it ready, steady, buy time for stocks?
Over the last month, the US stock market has rebounded 8%, the Nasdaq over 11% and our market put on 6.2%. I’ve been canvassing the idea that market has been trying to put in a bottom over the past month, so the question is this: can I dare say to investors: “Ready, steady, buy!”?
Ultimately, I don’t know your individual circumstances but the cautious investor should wait until mid-August. However the more gutsy share market player might want to wait for a dip and then get set for the rebound I expect will take root in the December quarter.
Meanwhile, the real thrill seeker will buy now and keeps their fingers crossed that time will prove them right. They also could be prepared to buy more if the stock price drops because recent rebounds are probably giving us a sneak preview of what is likely to happen when the interest rate rise cycle goes into pause mode, or even ends.
So why the confidence that we should believe we’re getting into the ‘buy’ zone for stocks?
Consider these recent developments:
- The US has gone into a technical recession with two quarters of negative growth but it’s thought to be a mild recession, though it’s thought this should be good for slowing down or even ending rate rises.
- After his 0.75% rate increase at the end of July, and following the recession news, the US central bank boss, Jerome Powell, implied he might have had enough of big interest rate rises.
- The US stock market loved hearing what he said and the big players on Wall Street have reduced their expectations about how high rates will go.
- Tom Lee of Fundstrat Global Investors has called the US bear market over and is predicting a strong recovery for Wall Street going into year’s end.
- US company reporting season has come out better than expected, with AMP’s Shane Oliver figuring that “US S&P 500 companies have now reported June quarter earnings with so far 73% ahead of expectations and earnings growth expectations for the quarter moving up from 5% year-on-year to 6.7%, and on track for around 9%, based on the current rate of earnings surprise.”
- US financial heavyweights such as Wells Fargo and JPMorgan are starting to get on board with buying tech stocks which they say are “looking interesting.”
- The US stock market index was up 7.97% in July and the tech-heavy Nasdaq by 11.35%, which implies a lot of sellers of stocks are now buyers.
- Our stock market was up 6.2% for the month and is only off 8.5% for the year so far, after once being down 16%.
- The local money market was expecting the cash rate to go as high as 4.5% but they’ve pulled that back to 3% and the CBA economics team thinks it will peak at 2.6%.
- Despite rising interest rates, 32 out of 32 economists surveyed by the AFR couldn’t see a recession for Australia ahead.
- And believe it or not, scary headlines such as “House values tumble and could drop faster as rates set to rise…” could actually help create a positive turning point for stocks.
That’s a strong list of reasons to believe that stocks should make a comeback this year but where I could get it wrong is when you should buy to avoid another leg down. This could happen if the US inflation reading on August 10 doesn’t show that the Consumer Price Index is starting to fall. The market expects to see this, and I think it will, but you can never tip this sort of thing and be undoubtedly right.
There could also be another curve ball, such as the Ukraine war to send oil prices sky high again and that would ruin positive expectations about falling inflation rates. When it comes to what Vladimir Putin does is beyond my training as an academic economist.
However, the best protection for stock-buyers now is that they see themselves as long-term investors. Why? Try these facts about this kind of investing:
- The S&P 500, which is a key driver for our stock market, posted positive returns for investors over most 20-year time periods.
- The S&P 500 experienced losses in only 11 of the 47 years from 1975 to 2022 and its why people like me say the market usually has two bad years in 10 and explains why overall market indexes have returns of 8-10% per annum over a decade.
- Investing long-term cuts down on costs and allows you to compound any earnings you receive from dividends.
- Historically, investing in the third and fourth years of a US Presidency has been a reliable strategy, though no strategy can always work out 100%.
- The two best quarters for stock market are the December and March quarters.
- Following a big sell-off for stocks you generally see a big comeback for stock indexes with the US market rising 50% in a year after the GFC crash and 40% after the Coronavirus crash.
Telling you to buy now and expect immediate gains over the next two months is risky, given the fact that reporting season news or future economic data drops could encourage short-sellers try to test out this recent rally for stocks generally, and tech stocks in particular.
However, if you are prepared to be patient for what I think happens to stock prices by Christmas, then buying my “ready, steady buy” suggestion, and if you go long good quality shares/businesses, well this could easily prove to be the gift that keeps on giving!
Peter Switzer is founder of the Switzer Report. All prices and analysis at 02 August 2022. This information was produced by Switzer Financial Group Pty Ltd (ABN 24 112 294 649), which is an Australian Financial Services Licensee (Licence No. 286 531This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. This article does not reflect the views of WealthHub Securities Limited.