Investors shouldn’t be surprised if a fresh barrage of negative views emerge about the stock market, which has been pulverizing all the naysayers’ dire predictions of doom and gloom. The Dow Jones industrial average and S&P 500 stock index have both catapulted to all-time highs, which the bears hardly saw coming. But don’t be unhinged when they persist in raising an alarm of “danger ahead.”
Remember the chorus of “sell in May and go away” from the growling bears and rigid skeptics earlier this year? This column advised readers back then to disregard that dictum and strongly suggested instead to “buy the fundamentally sound stocks that hasty investors are selling in May, presumably at reduced prices, and profit from them when they bounce back by October’s end as they resume their expected rise.”
Well, it’s only mid-July, and the market has already blown away the “sell in May” adage. But don’t expect that to discourage the bears from continuing their chant about the coming of an “imminent” plunge. Somewhat predictably, their warnings of “danger ahead” haven’t abated.
“Some of these bears are the ones who cried ‘technical danger’ earlier this year, spooked by the market’s scary price patterns,” recalled Ed Yardeni, president and chief investment strategist of Yardeni Research. They’ve been “crying overvaluation” for some time, but the difference now, he pointed out, is that “investors aren’t hearing their screams or are just tuning them out.” Yardeni noted that the “aging bull refuses to be bullied by the bears.”
Yardeni and his team, who remain bullish, strongly suggest that in ceaselessly warning about a market decline, the bears have been either ignoring or fighting the Federal Reserve and other central bankers. “We aren’t ready to fight the men and women who have access and are willing to spend trillions of dollars, euros, yen and yuan to stimulate their [nations’] economies,” said Yardeni. All that liquidity “has to go somewhere, and lots of it has flowed into global asset markets,” he said. He pointed out that the All Country World MSCI index is up (in local currency) 134 percent since March 2009 through last Monday.
So here’s what some savvy long-term investors are doing in the face of the market’s major barometers riding high to new records: They’re staying bullish. They aren’t panicking about the ongoing “melt-up,” having witnessed the many meltdowns in the past, the most recent in February on worries about China and falling commodity prices, and the brief two-day global concern about Brexit, when the S&P 500 declined 5.3 percent on June 24 and June 27.
Since then, the S&P and the Dow industrials have climbed to new records on Monday July 11 through Thursday July 14, 2016. The Dow eked up again on July 15 by 10 points to close the week at 18,517, though the S&P slipped by 2 points to 2,162, and the NASDAQ Composite also gave up 4 points to end at 5,030. (NASDAQ remains 3.5 percent below its record close in July 2015.)
“Even fears of an Italian banking crisis haven’t tripped up the bull,” noted Yardeni. The S&P’s July 14 close marked an all-time fourth consecutive day at a new record, its longest period of all-time highs since Nov. 14, 2014.
With the market having achieved such lofty levels, the temptation for investors is to quickly bail out of equities, given the continued warnings from many quarters that the market has now “peaked,” with nowhere to go but down.
But the more seasoned and intrepid investors who have witnessed the market’s volatile character and erratic behavior — and profited from it — are taking advantage of such pendulum swings, and they aren’t that easily fooled by repeated warnings of danger ahead.
Of course, many such investors confide that that they do pay close attention to what’s going on, and so they’re now selling from 10 percent to 20 percent of their shares that have achieved gains of some 10 percent to 25 percent, primarily to raise cash for the next round of opportunities when the market pulls back, as it normally will, for whatever geopolitical or domestic economic reasons.
That’s an important discipline for the investors: to take a reasonable amount of money off the table to augment their cash reserves for the next buying opportunity. They either buy back at lower prices some of the same stocks they had sold, and harvest handsome profits from them later, or they purchase stocks on their “waiting list” on which they have done diligent research.
Some of these long-term investors are already buying shares of several tech, financial, biotech and health care stocks that didn’t fully participate in the currently robust rally.
Among the stocks these pros, who all asked not to be named, are buying are Apple (AAPL), which has been a laggard this year, currently trading at $97 a share — way below its 52-week high of $132.97; JPMorgan Chase (JPM), trading at $63 — below its one-year high of $70.61; biotech Celgene (CELG), which is down to $103 from its 52-week high of $140.72; and CVS Health (CVS) in the health care services, now at $97, down from its 52-week high of $113.65.
These stocks have had their days — if not years — of market glory in recent times and have demonstrated their tenacity and resiliency during both good and bad markets climates. These pros argue that they’re among the fundamentally sound and attractively valued stocks that are desirable to buy at opportune moments.
These value-and-growth investors see them as safe and attractively priced bets for the long term.