Brooke Thackray: Market Update (October 2016)

October 11, 2016

3 minute read

Brooke Thackray's Market Update - October 2016

by Brooke Thackray, AlphaMountain Investments

Over the last month the market has been virtually ﬂat, despite some ups and downs. A lot has happened economically and politically. The U.S. Federal Reserve held rates at the FOMC meeting, the Nonfarm payroll numbers disappointed, investors brieﬂy questioned the viability of Deutsche Bank, the British Pound plummeted in daily trading only to largely recover later in the day and the

U.S. has had two presidential debates with a lot of fanfare and mudslinging. Nevertheless, the market has taken it all in stride. Nothing seems to phase the markets. It is at times like this that market is susceptible to a sudden correction, when something unexpected happens.

The S&P 500 is close to the top of its trading range and has gained ground in the summer months, when it often produces losses.

Many investors are wondering what to do? Enter the market for the favorable period for stocks (October 28th to May 5th), or wait? Arbitrarily waiting because the stock market is higher now than six months ago is an emotional decision. Investing is about probabilities, nothing is for sure...ever. Seasonal investing is about seasonal probabilities. If risk avoidance measures have been used and the action did not provide value, it is always easy to look back in retrospect and judge that the action should not have been taken. If moving to a more conservative portfolio forgoes returns, the action should be judged on whether it was appropriate to take the action, not necessarily on whether it was successful or not. When the same circumstance arises in the future, deciding what to do should not be inﬂuenced by whether it worked last time or not. The decision should be made on the estimated probabilities of possible outcomes, based upon the long-term results.

The fact that being more conservative in the six month unfavorable period has lagged the market this year, so far, should not be the pretext for judging the overall six month strategy.

On the ﬂip side, just because the S&P 500 has had a small increase during the unfavorable six month period, does not mean that the upcoming six month favorable period is going to perform poorly. One period’s performance is not necessarily related to the other period’s performance.

In previous newsletters, I have stated that I am not a bear or a bull. I do not get trapped into a hardened position and only see the market from one side.

It is about seasonal probabilities. Over time, the six month period from October 28th to May 5th, tends to perform better than the other six month period, with larger average gains and fewer big losses.

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From my perspective, despite the market having rich valuations and having gone up slightly over the last six months, it is still best to follow the long-term seasonal discipline and prepare to increase equities for the six month favorable period for stocks from October 28th to May 5th.