The prospect of a bear market is upsetting to many people; to most people. They want to know, “when can I buy?” or “was that the low?”
A tell-tale sign that the bear market has run its course is when people stop asking those questions and instead make declarations such as, “I just sold every stock I own because this market is going to hell.”
Many investors are in the position of the little kid in the back seat of a car on a long family drive asking, “are we there yet?” They just want this ride to be over with and for us all to be in a bull market already.
People need to summon all their patience and discipline, and cultivate much more of it, because this is going to be a long grind.
People can get excited about numbers like today’s employment report because it came in “better than expected.” But nothing has changed. Monthly employment numbers have a margin of error of more than 100K. The reality is that this employment report, together with those of the past several months, continues to reflect a decelerating economy that is on the verge of tipping into recession. At the pace of job creation manifest in the past few months, unemployment will rise. No good news there.
As I pointed out yesterday, none of the main drivers of the current global economic slowdown and equity bear market are going away any time soon. First, the crisis in Europe will drag on for months and the euro project will be on the edge of collapse before the drastic actions that are needed are finally taken. Second, the chances of a satisfactory Super-Committee resolution to put the U.S. on a sustainable fiscal path are slim. Finally, the handwriting is on the wall: Global growth is slowing in the developed and developing word and recession will be the topic du jour for the next several months at least and be weighing heavily on financial markets.
In a context in which global markets will continue to be pounded by these issues for months, a flimsy bottom such as the one put in on Tuesday will not hold.
People should not forget that hope seemingly springs eternal during bear markets. During the 2008-2009 U.S. market fiasco, the equity markets (^GSPC, ^DJIA, ^IXIC, ^NDX) had a number of rallies of well over 10% over the course of several months. However, the factors that were driving down the market (SPY, DIA, QQQ) at that time could not be reversed with mere government promises and forces that gave rise to the crisis had to play themselves out to some degree. Similarly, there are no quick and painless fixes for the predicaments that global economies find themselves in – particularly the ones in Europe. More pain will be the precursor to eventual healing.
In a bull market, dips should be bought. In a bear market, rallies should be sold. This is a bear market, and the current rally will peter out, and before we know it, we will be testing 1,075 again on the S&P.
For this reason, even though stocks such as Apple (AAPL), Microsoft (MSFT), Intel (INTC), AT&T (T), Verizon (VZ), Pepsi (PEP) and Goldman Sachs (GS) look attractive at current levels, they will be available for purchase at prices that will ultimately be 15%-25% lower than they are at right now.
I will consider initiating put positions later today with the market in the 1170s.