I apologize, but something came up and I need to run out at the close.
I’ll move our meeting to 6:30 PM tonight as opposed to 4:30 PM. This may be an inconvenience for some, but there will be a video recording as usual for those to watch at their leisure.
“Timely Tom” came out with a warning in late July about being scared of August. Stocks responded almost immediately…Tom is out with a warning again, and he says you should “buy stocks aggressively. Tom has been one of few that has been right about this market all along. He states:
“We believe this 3% pullback NEEDS TO BE BOUGHT aggressively,” Lee wrote on Friday. Emphasis his.
Lee considers the simple history of stock price moves.
“Newton’s ‘law of motion’ applies to stocks in mid-September — 90% of time, if stocks up between 5% to 20%year-to-date (YTD), gains continue to year-end (YE),” Lee observed. “Since 1940, to gauge what stocks do between 9/15 and YE is simply look at YTD performance. When stocks are up 5% or better, they rally into YE 87% of the time (90% when between 5% and 20%). When stocks are down YTD (thru Sept), they historically show no further advance until YE.”
Tom Lee observes that stocks tend to rally into the end of years. (Image: FundStrat Global Advisors)
This line of reasoning may be a little oversimplified for most investors, especially considering the lineup of market-moving events going into the end of the year. It’s worth noting that Lee’s study found that the pattern he observed also held during election years.
Lee went further to consider fundamental and economic reasons why markets could rally from here.
“Why is this ‘law of motion’ at work?” Lee wrote. “We believe this law of motion is simply reflecting that whatever forces and factors drive YTD gains, are likely to remain in place into the end of the year. And we see this at work in 2016—(i) global search for carry; (ii) US economy remains on strong footing; (iii) underinvested investors (performance chase) and (iv) contrarian sentiment.”
Here’s a quick chart of a three and a half decade long trend. It’s the 30-yr Treasury Bond index.
While I’ve always said that this is one market that doesn’t have as great of a late 90’s correlation…the interesting similarity here to late 1998 is that prices had significantly deviated away from their longer term trend. A little bond market volatility here and a shit show begins.
Here’s a closer look at 1998. After a 2 year long run away from the trend, the meltdown was fairly bloody.
After a nice 2+ year move away from the trend, prices are slowly coming into support.
Tom is out with a warning again, and he says you should “buy stocks aggressively. Tom has been one of few that has been right about this market all along. He states:
Here’s a quick chart of a three and a half decade long trend. It’s the 30-yr Treasury Bond index.
