Bull or Bear? BTFD or STFR? TA look at Market direction

[Buzz]

The grind continues.  Now down more than 10% since 1 August, less than 3 months ago !
https://www.goodreturns.co.nz/article/976522402/nz-sharemarket-continues-to-slide.html?utm_source=GR&utm_medium=email&utm_campaign=GoodReturns+Market+Report+for+26+Oct+2023

This has been a good time to reevaluate, to accumulate cash and lock in TD's that confound many companies dividend payouts. I've never had so much off-market cash investment as I do now and there are few signs that it will go into the equity markets anytime soon. That said, I've not sold any of my long holds despite a few of them being under water, as the dividends are more than eroding the capital losses (on paper) as time goes by.

[Basil]

Interesting times for sure.  I had thought we might see some strength after the election result.
I once heard someone describe cash and short term deposits as "shock absorbers" for your portfolio and in the same way that good shock absorbers make for a smoother ride in your car, so they do for your portfolio.

Forbar reckon the forward PE of the market at 20.4 is still 13% above the long term average.  I think that's distorted by some market heavyweights having PE's that are unreasonably high, (I will resist naming names).  Freightways reckon the economy is weak and slowing.  They're probably in a good position to know.

[Shareguy]

Thought this was good from Craigs

the casino, no matter the game the odds are always tilted in favour of the house.
You might get lucky a few times, but the more you play the greater your chances of losing.
In contrast, when it comes to investing in the sharemarket, the longer you stay the better your odds of success.
Looking back at historic daily returns for the S&P 500 in the US, the index has been up 52 per cent of the time.
That's better than even, but only just. If you want to know what the market is going to do on any given day, you may as well flip a coin.
If we increase our holding period from daily to monthly, the probability jumps to 59 per cent, which still isn't particularly compelling.
However, when we look at rolling 12-month blocks, the likelihood of a positive return shoots up to 73 per cent.
That's based on monthly returns data going back to 1900 for that, so it's a sample size that includes plenty of recessions and rough periods.
One year is still far too short to be considered the timeframe of a long-term investor, but things start to get interesting when we consider holding periods of five years or more.
The historic likelihood of a positive return improves to 89 per cent, before increasing to 97 per cent over ten-year blocks.

[Basil]

"The historic likelihood of a positive return improves to 89 per cent" - 5 years

Good post, thanks for sharing but what's left unsaid is that's a positive return above zero, not above the inflation rate or what you could earn on bonds or term deposits.  If you're comparing that to good quality corporate bonds at 7.5% per annum plus or even money in the bank at 6% the odds of shares beating that are much lower.  One thing for sure, the old adage of "TINA" (there is no alternative), to stocks is well and truly past its use by date.

People near retirement like me or in retirement already, are well advised to take a more balanced approach to risk management.  Time and time again I am seeing old hands experts on CNBC saying you can now get equity like returns for much lower corporate bond level's of risk.  The classic 60/40 portfolio (60% equities, 40% bonds) has had its worst year in decades.  Maybe a 60% bonds 40% equities portfolio will have a great year in 2024?  Maybe 10 year Treasuries keep heading higher and there's another year of losses on bonds and shares next year. 

Maybe one third cash / short term deposits, one third bonds and one third shares is a good idea for 2024 ?
Its sure been rough seeing more than 10% wiped off the NZX in the last 3 months.
NZX50 inclusive of all dividends is now down more than 30% in inflation adjusted terms since January 2021.  Feels like the Bear market is grinding on and on and on....

[kiwi2007]

What's the annual average return for the New Zealand stock market ?

https://www.theglobaleconomy.com/New-Zealand/Stock_market_return/#:~:text=Stock%20market%20return%2C%20percent&text=For%20that%20indicator%2C%20we%20provide,from%202021%20is%209.26%20percent.

For that indicator, we provide data for New Zealand from 1993 to 2021. The average value for New Zealand during that period was 5.63 percent with a minimum of -24.68 percent in 2008 and a maximum of 22.71 percent in 1993.

ASX over thirty years was 7.06%

[Basil]

For that indicator, we provide data for New Zealand from 1993 to 2021. The average value for New Zealand during that period was 5.63 percent

Thanks, that's definitely food for thought when you can get much better returns than that now in the bond market.

Maybe one third cash / short term deposits, one third bonds and one third shares is a good idea for 2024 ?

Probably not a silly idea for an old dog like me.  Certainly, sleep better at night.

[BlackPeter]

Next month marks one year to the US 2024 elections.  Since most international markets take their lead from the US, the next year could be a big underperformer.

I suppose the current share market weakness is only indirectly related to uncertainty in US politics (though, yes - the Rublicans shooting themsleves with the semiautomatic repeatedly into both feet might be on some peoples minds).

More important however is in my view

(1) the sitation in the Near East ... this could well turn into World War III with Nazis on both sides of the border line
(2) the risk that China uses the chaos from (1) to increase their empire and creating a warzone in SE Asia, including Indonesia and Philippines;
(3) the risk Chinas economy crumbles under the real estate crisis they currently have (remember - no better distraction from internal problems than fighting an external enemy)
(4) global warming creating significantly faster and higher economical damages than expected

Lets face it - who really would care in such a situation which clown is going to run the USA in 2025?

Uncertainty all over the place - what exactly do we expect share prices to do?

[KW]

For that indicator, we provide data for New Zealand from 1993 to 2021. The average value for New Zealand during that period was 5.63 percent with a minimum of -24.68 percent in 2008 and a maximum of 22.71 percent in 1993.

ASX over thirty years was 7.06%

For the last 30+ years interest rates have been falling.  As interest rates fall, asset prices go up as the P part of P/E expands.  Will we get another 30+ years of falling interest rates?  Extremely unlikely, if not impossible (if one discounts continuing negative interest rate policies).  So without that major tailwind, what is the forward return of the share market likely to be?  I suggest its more likely to be correlated to the E part of the P/E.  

[KW]

And it hasnt gotten any better chart wise.  Hi/Lo chart still firmly negative

You cannot view this attachment.

And the Nasdaq is now in a clear downtrend

You cannot view this attachment.


And the Small Ords in Australia is back at 2017 levels, and heading for 2016.  Basically, if you didnt lock in the profits from the rally from March 2020 to Sept 2021 you would have gotten no return for 6 years.

You cannot view this attachment.

[Basil]

Yeap its sure been tough out there in recent times.  Depressingly tough.
In addition to what KW has posted above, according to CNBC this morning the broad measure index Russell 2000 is down 11.7% in the last 2 months.
NZX50 inclusive of all dividends paid is down more than 11% in the three months since 1 August and that covers the year end dividend season !

My opinion:  Equities are in the process of being repriced for where 10 year Treasuries are now after a huge lift in rates in the last few months.

Are we likely to see a quick bounce-back?  Very unlikely in my opinion.  I'd like to think most of the repricing work is done but my gut feel is there's some more wood to chop.

[KW]

Yup, the Russell 2000 is just as depressing



You cannot view this attachment.

[Onemootpoint]

The US market appears to like what came out of the Fed meeting. For the moment in any case.

[Shareguy]

Well I think the worst is over. Onwards and upwards from here.


https://www.cnn.com/2023/11/14/investing/us-markets-soar-on-inflation-news?cid=ios_app

[Basil]

I agree.  Inflation is on the way down.  US10 year treasuries down a whopping 17 basis points this morning.
The FED is done, the RBNZ is done and we're looking at interest rate cuts and maybe several as early as next year.   Cash aznd short term deposits look attractive here but they won't be a year from now.

This is the time to take on risk, put those hefty cash reserves you've built up to work, let's go !

[KW]

Hi/Lo chart looking healthy.  As mentioned on my Momentum thread, there are a lot of healthy breakouts happening in the Aussie small cap space, which has been the serial underperformer for years and in a downtrend since around Jan 2022.  The Aussie indexes are still below their 200 day MAs but they will catch up in time.  I think late Oct/early Nov might well have been the "bottom" - at least until something unforeseen happens.  I'm back buying stocks, and locking in some high dividend yields for future income.

You cannot view this attachment.