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Where's Waldo? Print PDF

When we were raising our sons, the “Where’s Waldo” books were just becoming popular. Each page was crammed with pictures, all done in the same style, and you had to spot the Waldo character among the crowd. Some were easy, others proved difficult for the kids. 

Now I know how they felt. The charts of our stock market indices have left me just as perplexed as the kids were searching for Waldo, but in my case I’m wondering, “Where’s the Trend?” Since August 1st, here’s what the S&P 500 index chart looks like:

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Try to spot a trend! If there is one, it’s down. What I mainly see is volatility. Our friends at the Bespoke research group summarized the recent market action as follows:

Since 8/1, the S&P 500 has seen eight declines of 5% or more and eight advances of 5% or more. Again, given the volatility we have had in recent months, many investors may have become immune to these types of moves, but to put it in perspective, there were periods in the 1990s where the S&P 500 went more than a year without more than one rally or decline of 5%. These days the market is seeing one about every 8 days!

Yet, as I’ve been writing for months now, our markets are much better than the rest of the world’s. Take a look at the DAX – the index of Germany’s stock market:

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There is a trend but it is definitely lower. As I have also been writing, the only safe place for months has been in the bond market. That’s the reason why our MAPS and SAS portfolios have been so conservative lately, and why in November, many of these portfolios made money while the indices declined.

Looking at the economic picture is a little easier than trying to spot the trend in our stock market price charts. Comparing our economic outlook to the rest of the world may yield a surprising result. As bad as many perceive it to be here, it is worse elsewhere. If we focus, for example, on Manufacturing PMI reports for countries around the world, we find that while the US is in the non-recessionary region of the chart above 50%, the average global economy is just 49.6%. At the same time, our principal international competitors in the developed world in Europe have current readings substantially lower.

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In addition, as we have also been reporting since the end of summer, more economic reports here in the USA have outpaced expectations than have experienced the contrary. Last week was no different, although the spread narrowed. Still, year over year, the Bespoke index of economic indicators illustrates generally positive news in this country of late, hence the better performance by our stock market indices.

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Unfortunately, despite the better economics here, the markets since May have demonstrated that we are not immune to the bad news from Europe. And the volatility, evidenced by our initial chart, has been caused by the waxing and waning economic fortunes of that continent across the sea – not so much here.

It’s hard to see that changing in the near future, but at least the talk lately has been of positive plans to deal with it. The first concerted central bank action in a long time, which came last Wednesday, is certainly encouraging. If nothing else, it provides some breathing room for European leaders to get their act together (hopefully, our leaders will use the time to do the same!).

The period for this breathing room is also the seasonally positive December period for our stock market. December has seen stock market gains about 70% of the time, whether measured over the last 20, 50 or 100 years. Be careful though – normally there is a dip in stocks in the 12/7 to 12/13 period before the year-end Santa Claus rally.

It’s a good thing Santa is easier to pick out of a crowd. I hear you can’t miss him.

All the best,
Jerry

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To our In My Opinion readers:
Everything in the newsletter pertains to strategies available on our Strategic Solutions platform at Trust Company of America. The same strategies are implemented on many other products: mutual funds, variable annuity, variable life and retirement platforms. Therefore, we expect the strategic discussion may be of interest to you. Note, however, that since these products have their own subaccount and fund universes and different internal expenses, the results and trading of the same strategy on other platforms may differ substantially from those described herein.

In My Opinion: Managed Retirement Plan Participants:
Most of you are managed using Lifetime Evolution and our sub-advised funds, so those topics will be most applicable to your account. But, more and more of you are in plans using Market Leaders. If so, that newsletter section may interest you