Too often investors…focus on the negative, lose confidence in stocks and, as a result, they can miss great bull markets… I believe when it comes to finding investment opportunities…it’s all about both monetary and fiscal policy….[As such,] I encouraged investors to follow the money. With that in mind, here are two of my favorite charts that I believe demonstrate how investors can do exactly that.
So says Frank Holmes (usfunds.com) in edited excerpts from his original article* entitled Two Charts Illustrate How to “Follow the Money”.
[The following article is presented by Lorimer Wilson, editor of www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Holmes goes on to say in further edited (and in some places paraphrased) excerpts:
Below are said charts:
1. Global Manufacturing Activity
Manufacturing data among numerous countries has recently been moving in the right direction. For the month of July, the JP Morgan Global Manufacturing Purchasing Manager’s Index (PMI) stayed above the three-month moving average for the second month in a row. Global output continues to expand, rising to 50.8 from 50.6 in June.
The PMI…[is more than just] a gauge of economic well-being for the manufacturing sector. Last month, after the PMI initially crossed the three-month reading in June, I explained that this “crossover” has historically signaled higher prices for many commodities [stating that,] using the SPDR S&P Metals & Mining ETF (XME) as an example, since the beginning of 2009, history suggests that one month after the crossover, 60% of the time, the XME has gained an average of 7.4%. Consistent with its historical pattern, in July, the XME rose 7.6%.
There may still be room for these stocks to grow, too, as the next two months look promising for metals and mining companies. If you look at the three-month average after the “crossover,” 80% of the time, the XME gained 12.6%.
2. Presidential Election Cycle
Last fall, I said that all the excess money in the system, compliments of the Federal Reserve’s policy decisions, helped the S&P 500 Index to climb significantly. In fact, President Barack Obama’s first-term presidential cycle beat the average of all other presidential cycles going back to 1929. You can visually see this substantial growth in the red line below.
Now, a few months into his second term, Obama’s presidential cycle remains remarkable, as stocks continue to climb a wall of worry. The yellow line shows this upward trend, an outcome of the continued easing policies in the U.S.
At U.S. Global, we believe that government policy is a precursor to change, and the change appeared to be significantly positive for the S&P 500. To me, this chart indicates that many investors who have been following the Fed’s quantitative easing trail have found a very profitable path in U.S. stocks.
Looking Forward: Positive with a Chance of Rally?**
The S&P 500 Index closed the month of July with a 4.9% gain. What does this increase mean for the next few weeks and following three months? Research suggests markets continue to rally.
Since 2009, there were 13 individual months the S&P 500 gained at least 4%. Around 85% of the time, the index showed further gains, averaging 2.3% and 5.4%, respectively, for the one-month and three-month time periods.
|Dates: S&P 500 +4% Or More In 1 Month||1 Month Change||What Happens In Following Month||What Happens In Following 3 Months|
|Post-2008 Probability of Positive Returns||84.6%||84.6%|
|1928-to-date Probability of Positive Returns||65.1%||64.7%|
The continued rally holds true even if you look farther back in history. Since 1928, which is the year containing the earliest available data from Bloomberg, there were 215 times when the index gained at least 4% in a month. Even then, about 65% of the time, stocks saw an increase. The 1-month and 3-month returns were 0.9% and 2.0%, respectively.
Analyzing historical market trends can help investors take advantage of market cycles, although keep in mind the past does not predict the future. It’s hard to simply brush off the prospective brightness, however, as jobless claims headed in the right direction and manufacturing data out of China, the U.K. and the U.S. were all better than expected this month.
With a forecast for sunny skies, make sure your portfolio is positioned to shine.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.usfunds.com/investor-resources/frank-talk/two-charts-illustrate-how-to-follow-the-money/ **http://www.usfunds.com/investor-resources/frank-talk/stock-forecast-positive-with-a-chance-of-rally/ (©2013 U.S. Global Investors, Inc. All Rights Reserved)
With the stock market up over 20% since we forecast in July, 2012 that we would see the Dow at 20,000…[by the end of the] decade, our forecast seems less ambitious than back then. US stocks are not overpriced or overleveraged, and remain more attractive than at prior peaks. As such, based on current conditions, we now project that…the Dow will reach 20,000 by late 2018. Read More »
History clearly shows that stocks don’t fall during periods of rising interest rates. Sure, they might fall a little when a rate hike is announced – maybe for a week or so – but they usually bounce back quickly – and then they go higher. Read More »
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Are stocks in a bubble? While leverage has returned to the stock market driving up stock prices and aggregate demand in the process, margin debt is still shy of its all-time high as a percentage of GDP, so there is certainly some headroom for further rises. A look at the following 5 charts illustrate that contention quite clearly. Read More »
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There are several fundamental reasons to believe that this week’s stock market activity, where the S&P 500 has moved more than 4% above the 13-year trading range defined by the 2000 and 2007 highs, could mark the beginning of a long-term bull market and the end of the range-bound trading that has lasted for 13 years. Read More »
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U.S. stocks are off to one of their best starts in years. Most indices are up 10% year to date, prompting many investors to ask: “Are we in another bubble?” The answer is no, at least when it comes to equities. Here are three reasons why:
The mainstream financial press would like us to believe that because the S&P 500 and Dow 30 are at or near their record highs that it must mean we’re nearing the end of the current bull market and, as such, now must be a terrible time to buy stocks. Let’s not jump to any conclusions, though. Instead, let’s do our own due diligence to find out. Hint: If you’ve been stuffing cash under the mattress since the last market crash, you might want to finally go deposit it in your brokerage account. Here’s why… Words: 420
While I remain cautious on stocks and the risk trade, the technical picture shows that the uptrend to be intact and the bulls should still be given the benefit of the doubt for now. At this point, any call for a correction is at best conjecture [as evidenced by the following 4 indicators]. Words: 399; Charts: 4
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As we all know, money printing always leads to inflation. It’s just a matter of figuring out which assets get inflated. This time around gold is not the only beneficiary, stocks are, too, and I’m convinced that the chart below holds the key to the end of the bull market. Words: 475; Charts: 1
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As Winston Churchill once said: “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty” and in that vain I challenge all readers to fight off the negativity, see long-term opportunity in global equity markets and, most importantly, remain invested. Your future self may thank you. Words: 732; Charts: 6
Harry Dent, the financial newsletter writer and CEO of economic forecasting firm HS Dent, has one of the most bearish calls on stocks we’ve heard in a while. Appearing on CNBC yesterday, Dent explained the demographics-driven thesis behind his Dow 3000 call. Read More »
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Hot headlines about the Dow “storming back soon,” soaring to the “Next Stop, Dow 20,000” is nothing more than a new cycle of irrational exuberance. After losing an inflation-adjusted 20% the last decade, a prediction that the Dow will roar back 80% anytime soon is misleading, pure speculative hype. Reminds me of book titles like “Dow 36,000” and “Dow 100,000” back in 1999 – and memories of those mutual funds selling with absurd multiples over 40, with annual returns in excess of 100%. Worse than the tulip-bulb mania of the 1590s. What’s really roaring back is hype, happy talk and irrational exuberance. Words: 531
Most first quarter 2011 earnings reports are in and…over three-quarters exceeded expectations… [with] results showing a desirable combination of growing revenues, profitability and cash flow … [As such,] today’s stock market valuations are conservative compared to typical bull markets accompanied by investor enthusiasm. In the past, using 2011′s estimated earnings, the average P/E ratio could easily be 15 and…that would put the Dow Jones Industrial Average (DJIA) at 15,000 today – about 20% above today’s level. [Were we to] add in high optimism like the kind we’ve seen in other investments recently, a 20 P/E ratio would be possible – and the DJIA would be 20,000 – 60% higher [than it is today! Let’s take a look at the possibility.] Words: 540
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