Stock Market Outlook Through End of Year

[Herman Cain]

Looking to hear this boards opinions on the stock market through the end of the year. Thanks.

[GooooMarquette]

Not to get too political, but IMHO it depends on the election.  If HRC continues to lead and eventually wins, I think we'll see more up than down.  If Trump gets closer things could get rocky, and if he wins I think we'll see a downswing because Wall Street hates uncertainty.

[Dr. Blackheart]

September- October down historically.  Election is wild card.  Markets usually end the year like they start in January (down in 2016).   Economy still sideways on health, stuck overall slightly negative versus historical average.

[naginiF]

Haven't you heard?  The stock market is going to crash lead by APPL and its performance in the 5 years since Mr. Cook took over. 

There is no hope, only doom, for the market - every down week/month is an indicator of this downward spiral despite any other longer views performance to the contrary.

[Benny B]

The stock market is already historically overpriced by some metrics, and waning demand for the asset class is going to lead us into a correction (read: not necessarily a recession) sometime in the next 12-24 months.  Corporations are still sitting on tons of cash, which has helped to prop up stock prices, but the result of this is the lack of investment and innovation is leading to less growth; on top of that, declining disposable income in the 55+ cohort isn't being offset by rises in the younger cohorts as it has historically, predominantly the 25-35 bracket that's laden with student debt and most sensitive to rising housing costs.  Inventories, fixed investment and gov't spending are all down, leaving personal consumption being the only thing keeping GDP growth afloat right now, and a big contributor there is depressed oil prices, which are slowly starting to rise.  The biggest risk to the market is that as prices rise (and retirements accelerate), withdrawals from investments and nest eggs will accelerate... although I haven't seen anything recently as to where the 55+ have their savings, if there's overexposure to stocks, then rising prices could lead to an extended sell-off, which could take the DJIA down to who knows where simply on demand fundamentals alone (i.e. GDP could be going gangbusters as the stock market falls), which some - including myself - believe would lead to some pretty damn good values for those in the 35-45 cohort that not only have a long way to run before retirement (and can weather 10-15 years of Boomer sell-offs) but also have the cash to invest.

The bottom line is that GDP has been stuck in this 0-2% purgatory for almost two years now, and with the Fed Rate still in the basement, frankly, we could be just one Middle Eastern oil field explosion (i.e. spike in oil prices) away from a possible recession, which could accelerate some of the above concerns.  Nevertheless, we seem to be in this place where the camel is starting to show signs of fatigue, yet the straws of recession continue to pile on.  Honestly, I think the next recession is a lot more likely to stem from panic and irrationality; but whether it's that, oil, global crisis, a major bank/corporate failure, or something else, I don't think the next recession is going to be anywhere close to the magnitude or duration of 2008-2012.  I also think that employer cash reserves will help the economy to mostly weather the storm.  But if GDP declines are merely a blip for a couple quarters, the stock market may very well not react at all because to a certain extent, I think that many corporations and employers are expecting - and already prepared for - some sort of drop within the next year or two.

So if anything, the results in November could be the catalyst for the impending correction/recession, but the election itself isn't going to be any worse than the noise that Brexit made.  Honestly, it's hard to say but barring any major global geopolitical events, the DJIA will probably continue to hover around the 18k mark as it has for the past 20 or so months.

[brandx]

The stock market is already historically overpriced .......

If I had a dollar to invest in the overpriced market for every time I have heard or read that, I'd be hanging with my buddies in the Hamptons, instead of talking to you, Benny.

[GooooMarquette]

If I had a dollar to invest in the overpriced market for every time I have heard or read that, I'd be hanging with my buddies in the Hamptons, instead of talking to you, Benny.

Yep.  People have been saying that at least since '95, when the S&P crossed the $500 threshold.

[Dr. Blackheart]

Yep.  People have been saying that at least since '95, when the S&P crossed the $500 threshold.

Except the thread topic is what's going to happen in the next four months...

[GooooMarquette]

Except the thread topic is what's going to happen in the next four months...

Just reacting to a comment about the market being "overpriced."

The market may go up, it may go down.  But it will be because of things that happen over the next few months...not because the market is overpriced.

[real chili 83]

The stock market is already historically overpriced by some metrics, and waning demand for the asset class is going to lead us into a correction (read: not necessarily a recession) sometime in the next 12-24 months.  Corporations are still sitting on tons of cash, which has helped to prop up stock prices, but the result of this is the lack of investment and innovation is leading to less growth; on top of that, declining disposable income in the 55+ cohort isn't being offset by rises in the younger cohorts as it has historically, predominantly the 25-35 bracket that's laden with student debt and most sensitive to rising housing costs.  Inventories, fixed investment and gov't spending are all down, leaving personal consumption being the only thing keeping GDP growth afloat right now, and a big contributor there is depressed oil prices, which are slowly starting to rise.  The biggest risk to the market is that as prices rise (and retirements accelerate), withdrawals from investments and nest eggs will accelerate... although I haven't seen anything recently as to where the 55+ have their savings, if there's overexposure to stocks, then rising prices could lead to an extended sell-off, which could take the DJIA down to who knows where simply on demand fundamentals alone (i.e. GDP could be going gangbusters as the stock market falls), which some - including myself - believe would lead to some pretty damn good values for those in the 35-45 cohort that not only have a long way to run before retirement (and can weather 10-15 years of Boomer sell-offs) but also have the cash to invest.

The bottom line is that GDP has been stuck in this 0-2% purgatory for almost two years now, and with the Fed Rate still in the basement, frankly, we could be just one Middle Eastern oil field explosion (i.e. spike in oil prices) away from a possible recession, which could accelerate some of the above concerns.  Nevertheless, we seem to be in this place where the camel is starting to show signs of fatigue, yet the straws of recession continue to pile on.  Honestly, I think the next recession is a lot more likely to stem from panic and irrationality; but whether it's that, oil, global crisis, a major bank/corporate failure, or something else, I don't think the next recession is going to be anywhere close to the magnitude or duration of 2008-2012.  I also think that employer cash reserves will help the economy to mostly weather the storm.  But if GDP declines are merely a blip for a couple quarters, the stock market may very well not react at all because to a certain extent, I think that many corporations and employers are expecting - and already prepared for - some sort of drop within the next year or two.

So if anything, the results in November could be the catalyst for the impending correction/recession, but the election itself isn't going to be any worse than the noise that Brexit made.  Honestly, it's hard to say but barring any major global geopolitical events, the DJIA will probably continue to hover around the 18k mark as it has for the past 20 or so months.

Did you breathe while typing that first paragraph?

[Benny B]

If I had a dollar to invest in the overpriced market for every time I have heard or read that, I'd be hanging with my buddies in the Hamptons, instead of talking to you, Benny.

You focused on the first part you've heard before but ignored the second part of the sentence you haven't. 

Ever wonder why your buddies are all in the Hamptons while you're busy looking at that squirrel in your backyard?

[MURFC]

If subscribing to the overpriced market theory, would it be prudent for a person in their late 30's to rebalance their 401k to protect their investment?  Say moving more funds into bonds/debt or fixed income?  I'm currently 75% large cap (growth/value funds such as dodge, vanguard that are slightly above moderate risk), 15% blended fund (bonds, debt), and 10% low risk fixed income.

Obviously a lot of seasoned investors here, so I am curious on their thoughts around a yokel investor such as myself.

[vogue65]

The market will go up or down, you can take that to the bank.

[Tortuga94]

It's virtually impossible to predict what the market is going to do in the short-term. There are just too many factors involved that can cause the markets to move one way or the other. So, I wont try to predict which way the market will go for the next few months. We always tell our clients that we are not market timers, we are asset allocators, we will make tactical shifts when we think the market presents us with opportunities but we will always be invested in a broadly diversified portfolio among various asset classes.

Having said that, for the first time in a very long time, we decided to be slightly underweight US large caps. It's been a good run but we do feel valuations may be a little stretched at this point in the cycle. We are still slightly overweight equities though favoring the mid/small cap space. We also favor emerging markets to developed markets on the international side.

On the fixed income side, we prefer to take on credit risk. We are investing in high yield(short duration), non-agency mortgage backed securities, preferred stock, EM debt and in the non-qualified space we still like municipals.

[Benny B]

It's virtually impossible to predict what the market is going to do in the short-term. There are just too many factors involved that can cause the markets to move one way or the other. So, I wont try to predict which way the market will go for the next few months. We always tell our clients that we are not market timers, we are asset allocators, we will make tactical shifts when we think the market presents us with opportunities but we will always be invested in a broadly diversified portfolio among various asset classes.

Having said that, for the first time in a very long time, we decided to be slightly underweight US large caps. It's been a good run but we do feel valuations may be a little stretched at this point in the cycle. We are still slightly overweight equities though favoring the mid/small cap space. We also favor emerging markets to developed markets on the international side.

On the fixed income side, we prefer to take on credit risk. We are investing in high yield(short duration), non-agency mortgage backed securities, preferred stock, EM debt and in the non-qualified space we still like municipals.

Lots of good advice here.

[MURFC]

Lots of good advice here.

Very interesting.  Appreciate the response.  I probably need to hire an advisor!

[brandx]

You focused on the first part you've heard before but ignored the second part of the sentence you haven't. 

Ever wonder why your buddies are all in the Hamptons while you're busy looking at that squirrel in your backyard?

I like squirrels?

[Dr. Blackheart]

The market will go up or down, you can take that to the bank.

Thanks for the insight. To the topic, the market will be down the next two months and up the last two.  Take profit now and get back in on November 10. 

[manny31]

I think the market makes new highs between now and the end of the year. It will grind higher, there will be much hand wringing. Having said that I Want you all to know that I am almost a perfect fade. So buy a few March of 2017 puts and sell a few calls to pay for them.
I read a lot of financial doom porn and what I would like to know is what do you have to say about......What seems to be so much economic/financial BS. Rates are low(ambiguous term) by almost any measure, there is few trillion in sovereign debt that gets you a negative yield. Central Banks around the world have been adopted a crazy accommodative monetary policy since 2007(an argument can be made since 1997). The "yield chasing" that goes on is absurd. So many things are absurd, GAAP earnings