It has been another eventful week in the U.S. and global equity markets. As the year ends, it appears we may not be getting the much-anticipated Santa Claus rally. On the contrary, this year for the holiday’s the market has brought us uncertainty. However, we see the volatility as an opportunity to find good investments that are now trading at a discount to their levels from a few months back.
Over the last few weeks, the major news outlets have reached out to Robert Luna, CEO & Chief Investment Strategist, for his insights on the U.S. markets. “Now is not the time to panic. A 20% pullback from the peak is possible, but I believe that level creates real value for long term investors” said Robert. “Besides the fact, we are already roughly half way there. Trying to time the next 7-12%, which may or may not occur is exactly the wrong way to create long term wealth”, continued Robert. So, what should an investor do in these times? Here is Robert’s advice, “Trading and investing are two different things. In my twenty years’ experience, I have still not found one person who has been successful at the former.” In other words, stick to your financial plan and investment objective so long as no material changes have taken place in your unique circumstances.
Robert was quick to remind us of the importance of combining sound financial planning with asset management. “Good investing comes down to matching your investments with your cash flow needs” said Robert. “If you are counting on selling stocks to pay your bills in the next 90 days, you probably should have sold a long time ago” he continued.
Another topic of discussion in the market this week was the reemergence of the “Death Cross.” This is a technical indicator used by traders to provide an indication of a change in market trend. This metric uses the 50-day simple moving average and the 200-day simple moving average of the S&P 500. When the 50-day moving average crosses the 200-day moving average on the downside, it is seen as a bearish signal. However, the investment committee at Surevest decided to test the validity of this metric by analyzing the data. Over the last 10 years, the death cross has occurred 5 times, but contrary to the rule of thumb that this leads to bad market returns, we found the opposite. On average, the death cross has been a great buying opportunity.
| S&P 500 Returns After the Initial Death Cross | ||||||
| Start | End | Days in Death Cross | 3 Months | 6 Months | 9 Months | 12 Months |
| 1/11/2016 | 4/22/2016 | 72 | 6.44% | 10.67% | 12.21% | 17.78% |
| 8/27/2015 | 12/21/2015 | 81 | 7.52% | 0.63% | 7.58% | 11.96% |
| 8/11/2011 | 1/31/2012 | 119 | 9.65% | 20.50% | 20.80% | 25.08% |
| 7/2/2010 | 10/21/2010 | 78 | 11.27% | 22.37% | 29.37% | 28.51% |
| 12/19/2007 | 6/23/2009 | 380 | -8.50% | -8.00% | -16.60% | -39.00% |
| Avg | 146 | 5.28% | 9.23% | 10.67% | 8.87% | |
Source: Bloomberg
At Surevest, we do not rely on “common market wisdom” because we have found that on many occasions, like this one, it turns out to be wrong. That is why we rely on our Investment Pillars to guide us through the changing investment landscape.
Last month we wrote about each pillar and how investment decisions are made at Surevest. If you missed it, please reach out to your advisor and it will be provided to you. Also, check out Robert’s video clip HERE.
