Looks like it’s gonna rhyme

7 years ago, on November 9, 2014, I wrote this note about my instinctive view of the market, namely the S&P 500.

Back then, bearishness sentiment was growing.

Instead, the market traded sideways for 2 years before commencing the next multi-year bull run.

The parallels between then and now are (were);

The S&P 500 is trading 3 times higher from its respective lows seen 5 years prior,

The S&P 500 is trading at a historically stretched percentage above its 200 week moving average,

There is a lot of capital flow and Fear of Missing Out (FOMO),

Mainly driven by low interest rates,

Many people were and are calling bubbles and crashes,

The Oil price was hitting new highs,

Russian and Ukraine tensions existed,

A health epidemic / pandemic broke out (Ebola and COVID-19)

And…….

There was talk of the Fed changing interest rate policy, from Zero to something a little higher.

In December 2015, the Fed raised interest rates from Zero to 0.50%.

By December 2016, it was 0.75%

And in December 2017, it was 1.50%.

In other words, QE was over.

Back then, Janet Yellen was the Chair of the Federal Reserve, 

today, she is Secretary of the Treasury.

Between November 2014 and December 2016, the price of Copper and Oil fell 35%, the cost of shipping remained steady, Gold was flat (+/- 10% either side) and 10 year interest rates were mainly steady around 2.2% with a couple dips to 1.7% – 1.4% range.

So, unscientifically, we may see a S&P 500 that meanders sideways for 2 years while declining 15% at various times.

During which it digests and consolidates all that has happened, whilst the 200 week moving average rolls higher and converges around the 3,700 level, which it ultimately holds.

This is why I have been writing lately that the ETF Index based investor may be looking at ordinary to meagre performance in the years to come. This is especially the case when you consider the extraordinary distortion of 7 stocks accounting for 27% of the S&P 500’s weighting.

Love live the stockpicker !

Mark Twain is credited with saying, “History never repeats itself, but it does often rhyme.”

January 22, 2022

by Rob Zdravevski

rob@karriasset.com.au

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