Last month, we wrote that “shorter term indicators suggest the market is due for a rally soon”. Indeed, November saw the market advance 16 of 21 trading days, for a total gain of 8.9% in the S&P 500. Gains were broad-based with positive returns in 10 of the 11 sectors, and small cap stocks outperforming the broader market. The decline in long term interest rates helped to fuel the stock market rally and caused bond prices to increase as well.
Bigger picture indicators that have kept us cautious – money supply shrinking, suggestions of a weakening labor market, months of narrow participation in the stock market, etc. - have not changed meaningfully. We think it is right to stay patient and selective as we await a more definitive signal from our objective indicators before further committing to the market.
However, it has been nearly 2 years since the market peaked. 2-year periods with flat or negative returns are relatively rare and have usually been followed by strong returns. We remind investors that it is impossible to wait for all risks to disappear before investing. We will continue to rely on our objective indicators to guide us through this uncertain environment.
