A while back I wrote about some of the signs that were clear in the coming of the bear market. I also talked about how it is always easier to see the signs in hindsight once it has already happened.
Is the bull market around the corner? If we learn from the coming of the bear market, what are some of the signs for the coming of the next bull market?
- Investor become more pessimistic
- Little to no new stock issues
- Investors start to become more rational and realistic
- Low or decreasing interest rates
- Low or decreasing inflation
- Improving corporate profitability
- Increasing investor activity and sentiment
One man's opinion.
Every expert has an opinion on what markets will do in the future. I offer you my thoughts but keep in mind; they are only one man's opinion.
We are sitting in one of the best buying opportunities we have seen for over a decade. Global markets have all suffered together in this global economic slowdown. While the media often talks about the doom and gloom of past and present, there may be more good news ahead than your emotions might lead you to believe.
Logically, there may be 5 reasons why markets are going to improve:
- Statistically Speaking – The average bear market in Canada loses 23% for a 9-month period. Already, the TSE has lost 32% since August of 2000. Markets go up 67% of the time and typically reach new highs after bear markets. If history repeats itself, markets have a much higher probability of upside over continued downside.
- Governments are on our side – Just like investors, governments around the world do not want economic slowdown and market turmoil. They are committed to policies that should foster economic and market growth – lower taxation, lower interest rates, and other policies to stimulate the economy.
- Interest rates – There has been four consecutive rate cuts by the Federal Government. In the past, every time the Federal Government has lowered interest rates for three consecutive rate cuts, the markets have had positive double-digit returns in the following 12-month period. There is typically an inverse relationship between markets and interest rates. When interest rates go down, markets often move in the opposite direction.
- Cash sitting on the sidelines – There is a lot of money sitting on the sidelines with a ‘wait to see' mentality. Over 50% of all new RRSP contributions this year went in to cash investments. Typically, cash is not a long-term investment. Most investors are waiting for the right opportunity to get back into the markets. When it starts to flood in, watch out!
- Corporate profitability – The markets have been extremely sensitive to corporate earnings and profitability, both on the upside and the downside. Improved corporate earnings might be the catalysts we need to instill investor confidence. The good news is corporations are on track to improving corporate earnings – low interest rates, cutting expenses, and more focus on profits over growth. The problem is we never know when it will happen – second, third or fourth quarter?
The biggest problem is one of timing
The fact is the next major market occurrence will be another bull market because after every bear there is a bull. And for that matter, after every bull, there is another bear. This we know with 100% degree of certainty – markets move in cycles.
The biggest problem is we never know when the cycles are going to change. Change is inevitable but the timing of the change is ridiculously difficult to predict.
My advice is simple – buy now because it is one of the greatest buying opportunities I've seen in my investment career. I do not know when the markets will rebound into the next bull but my guess is it will happen sooner than later. Buy quality, employ patience and reap the rewards of logical investing.