26 October 2015
Have you ever watched an old rerun of your favorite TV show or perhaps enjoyed the same movie twice? Of course you have…
Can the same be said for watching similar patterns in the stock market? While nobody wants to see the market go through a nasty quarter like we just witnessed, like it or not, it will happen again. Stock market corrections are not predictable and they air on their own time!
Our opinion, however, is that the stock market in 2015 is very much like the one we saw in 2011. History may not always unfold just as it has before, but several patterns and background indicators tell us that there is a lot to learn from the 2011 stock market year. Take a quick peak at the end of this article for a visual representation of how the markets did from May to late October in 2011 and 2015.
Most of us can’t remember what we had for dinner last night so as a quick refresher let’s summarize what was going on in 2011:
During the summer of 2011 all of the news headlines and the overall narrative was absolutely negative. The sovereign debt crisis in Greece rattled nerves daily. Comparisons of Greece vanishing were eerily similar to the disaster of Lehman Brothers going bankrupt just three years prior. Almost all the financial pundits also talked about the Fed raising interest rates and what a devastating impact that would have on the market. Sound familiar???
In the middle of this past quarter, similar story lines have emerged. The 2011 summer correction flirted with bear market territory (-20% by definition) and from its peak to bottom pushed the market down over -15%. This summer didn’t feel much better as the market peeled off almost -12% at one point. Believe it or not, Q3 of 2008 was much better at “only” -9%. Most people don’t remember that because of how bad Q4 of 2008 was at -22.54%! Current emotions also negate memories of what happened in Q4 of 2011 as well…the stock market actually rallied over +12%.
We don’t expect quite that strong of a finish but firmly believe that we’ll see high single digit returns this final quarter. Obviously, anything can happen but the odds of another 2008 unraveling in the next 60 days are miniscule. Will that day come again? Perhaps...but no matter how clear your crystal ball is you’ll never see it coming.
The challenge of having a well-balanced portfolio is that much like in 2011…the story line is International and Emerging Market stocks have suffered the most. Even with a rally they will likely finish 2015 negative. In closing, here’s some food for thought: International and Emerging Market stocks were down -11.73% and -18.17% respectively in 2011. Everyone sold but guess how they did the next year? They both beat the S&P 500 with respective returns of +17.90% and +18.63%...