Don't Miss Your Chance to Catch a Bull Market
By Frank Holmes and John Derrick, U.S. Global Investors
Many people missed the marketâs enormous appreciation during the latest equity bull market because they were late to the game or chose to sit on the sidelines. The sideline is a crowded place these days as investors have been reluctant to fully embrace equities.
Household savings for the past 12 months totaled $711 billion, the highest level ever recorded in dollar terms. You can see from the chart thatâs roughly double the amount of savings recorded following the Tech Bubble. In fact, household debt-to-savings ratios are currently at levels so low, theyâve not been seen since the mid-1990s.
If youâre one of the people on the sidelines who has been debating whether to get your feet wet in todayâs marketânow could be your chance.
After peaking in late April, the S&P 500 Index declined for nearly seven-straight weeks before bouncing sharply last week. J.P. Morgan research says the seven-consecutive-week losing streak was an extremely rare occurrence during bull markets, only occurring once before in March 1980. That year, the market rallied 15 percent over the next three months.
Historically, summerâs arrival has been good for the market. J.P. Morgan analysts researched the S&P 500âs performance during the June-August period over the last 111 years. They discovered that markets have risen 3 percent on average during this period, with pretty high frequency of up years (roughly 60 percent). During bull markets, which we believe weâre currently in, the S&P 500 averaged 5 percent with up years 77 percent of the time.
However, recently there have been some notable divergences from historical norms. The S&P 500 rose 11 percent from June through August in 2009, but lost 4 percent in 2010 over the same time period.
One reason we think the market will rise during the second half of 2011 is that sentiment has grown pervasively negative in recent weeks. The American Association of Individual Investors (AAII) survey of investor sentiment, a popular contrarian indicator, showed 77 percent of individuals were bearish in June, one of the lowest readings since the beginning of this bull market in March 2009, according to J.P. Morgan.
Citigroup research also showed the pendulum has swung too far toward negativity. Their Panic/Euphoria Model, a proprietary combination of nine facets of investor beliefs and fund manager actions, gauges the mood toward the market. Overly bullish territory (Euphoria) generally signals a market correction is on its way, while a recovery arrives when sentiment is overly pessimistic (Panic).
Market sentiment fell into a âpanicâ at the end of June, which is a good sign for investors. Citigroup says thereâs roughly a 90 percent chance markets could move higher over the next six monthsâand a 97 percent chance over the next yearâaccording to historical data. On average, the market bounces 8.9 percent the following six months and 17.3 percent the following year.
