Warren Buffett once told us “the stock market is a device for transferring money from the impatient to the patient”. Which one are you? And while it sounds cliché, the power of patience is real. We need patience for two things: (i) allow our existing investments to work over time; and also (b) if buying, waiting for prices to come to us (eliminating FOMO). For example, some investors may have felt left out the past three months (I certainly did) – as ‘hot’ momentum stocks like Nvidia, Netflix, Meta and others surged. Fundamentals were not front of mind – where investors thought nothing of paying 40x plus earnings. The momentum trade had taken hold. But as we know – things inevitably revert to the mean.
Things Looking Better – But More to Do
For 23 straight weeks (from late October) – the market has effectively gone straight up. It added ~$12T in market cap with barely a pause – a rally for the ages. Now for ten of those weeks, it was in overbought territory – where the (weekly) Relative Strength Index (RSI) traded above 70. I cautioned readers of a likely (technical) correction. And whilst I stressed the market can remain overbought for several weeks (and it did) – it’s also an area to be cautious. This is where sell-offs start. And it seems we could be seeing the start of a 7-10% correction… however it’s still early.
S&P 500 +10.1% for Q1 – Can it Continue?
If you asked me at the end of December whether I thought the S&P 500 would be up ~10% at the end of the first quarter this year – I would have said “unlikely”. And yet here we are. With the promise of (coming) interest rate cuts and continued strong economic growth (implying growth in earnings) – US equities have arguably exceeded most analysts full year targets. For we have already exceeded all but 1 of 18 full year S&P500 forecasts “experts” made at the beginning of the year.
Don’t Fight the Fed…
“Don’t fight the Fed” is a popular Wall St. adage for investors. The phrase was coined by well known investor Marty Zweig in 1970. At the time, Zweig explained the Federal Reserve policy enjoys a strong correlation in determining the stock market’s direction. Fast forward ~50 years and his theory has proven mostly correct.
For a full list of posts from 2017…