- Fear drives short-term reactions, but long-term returns depend on earnings, not speculation.
- Historically, bull markets last around 61 months; we are currently at month 20 with many investors optimistic.
- May-October has been positive over the past decade, but caution is advised due to potential corrections and election-driven volatility.
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- During the 2022 Bear Market, I emphasized buying on declines (if not now, when?).
- In the 2023 recovery, while many predicted a recession, I presented bullish data.
- In early 2024, it was about building on the foundations laid in 2022 and 2023.
- Be greedy when others are fearful.
- Buy low, sell high.
- Time is your friend.
Bears sound smart; bulls make money.
This saying persists because predicting slumps and instilling fear leverages the most powerful human emotion: fear. In behavioral finance, fear is valued at 2.5 times earnings.
It feels like yesterday that I made these points (you can review all my analyses):
In short, nothing different from the classic rules of investing:
Today, the situation is very different, with an uptrend lasting since October 2022. The short-sellers are nearly gone, and everyone wants to jump on the bandwagon of seemingly easy gains.
So, where are we now?
Historically, bull markets last quite a long time, averaging 61 months. Currently, we're approaching month 20.
In terms of valuations and market cycle phases, we are certainly at the upper end. Some sectors and geographic areas are above average, but not yet at bubble levels.
Initially, the bull market began due to a recovery in valuations (a speculative factor). However, earnings growth is gradually supporting the movements, making this a healthier rise.
Here's another investing 101 tip: earnings drive long-term returns, not news or speculation. See below for reference:
Now that we have skewed toward the end of May, many are wondering if it’s worth following the classic saying, "sell in May and go away."
However, in recent years, this advice hasn't proven wise.
Except for the Bear Market in 2022, the May-October period has been decidedly positive over the past decade.
Of course, while the data suggests that May is not typically a poor month for performance, it's actually the September-October period that tends to be weaker. In my opinion, this market could face a short correction during that time - particularly given the election-driven volatility.
However, considering it's the last year of the presidential cycle and the second year after a bear market, we should still end the year with positive gains, barring any major external shocks.
Just as I was bold during the 2022 bear market, I advise increasing caution as prices and investor sentiment continue to rise.
The bond market, now in its third year of a bear market, should provide adequate hedging, especially if a recession occurs unexpectedly.
Currently, U.S. prices do not offer great opportunities, so diversifying into other geographies will be beneficial. At the sector level, we've seen strong performance from defensive stocks, particularly utilities.
Adequate stock picking can also help in times like these, as despite the uptrend, there are still good opportunities (for example by helping with the InvestingPro+ filter).
Until next time!
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.