5 market morsels in eventful week
Peter Hodson Independent Investor
Well , we have to admit it has been another most interesting year in the stock market.
Never a dull moment, as they say.
Investors learned lots this year, including some harsh lessons about downside risk, but — barring a December collapse — it looks like it will be another successful year for U.S. markets, and a very nice recovery for Canadian markets from the decline in 2015.
With that in mind, let’s take a look at five interesting market information tidbits this week. Some might be surprising.
PREDICTIONS ARE USELESS
We have talked in the past about how useless most analysts’ target prices are in terms of accurately calling stock price tops and bottoms. We have ( repeatedly) mentioned that you should simply give up trying to time the market. If you need more proof, simply look at the post- election rally this year. Not only did few predict a Trump victory, but no one — and we mean no one — predicted the market would go up if he did win. His loose cannon style and trade talk were seen as a potential disaster to the market, with some predicting a 30 per cent drop if he won. Now, markets are surging, and all those “predictors” are wondering why they even bothered. Keep this in mind next month, when we are sure to see another round of “next year” market predictions.
NEW HIGHS ARE MORE COMMON THAN YOU THINK
Investors cheered this week as new highs were set on numerous market indices. In fact, this week all four closely-watched indices: The Dow, S& P 500, Nasdaq and the Dow Transports, all hit closing highs on the same day, something that has not happened in 25 years. A very interesting posting by the website A Wealth of Common Sense noted that since 1950 a new high has been hit in the market on nearly seven per cent of all trading days. Bring ’em on.
THEY SHOULD MAKE A MOVIE
When we first put out a research report on Amaya ( AYA on the TSX) a few years ago, at $ 2 per share, we thought it was an interesting company. We had no idea how interesting it was destined to become. This week, a company supposedly tied to the $ 6 billion takeover of Amaya indicated it “had never heard of the company.” Really. We can’t make this stuff up. This news of course is just the latest from a company whose history reads like a gossip column. A very large takeover. Insider trading allegations. A takeover. Not a takeover. An alleged kickback scheme. Who knows what’s next in this saga? The company’s press release this week basically added no clarity. The exceo admitted the proposed funding from one party was not in place and the proposal was delivered “without KBC’s knowledge or consent.”
SMALL CAPS ARE BACK
Investors have been wary of small cap companies more or less ever since the financial crisis. Seen as more risky than large companies, investors avoided the little guys, even though they typically have much higher growth rates. But now, with the Russell 2000 i ndex of small cap companies up 18 per cent for the year and at a record, investors like them again. In a growth environment, small cap companies can do exceptionally well, so you might want to consider your exposure to add some more torque to your portfolio.
CURB YOUR ENTHUSIASM?
Of course, whenever markets are at record highs, the pundits and short sellers come out in droves, telling you the new highs “mean nothing” and a crash is about to occur. But a simple check on most of these guys will tell you that they are “always” bearish. We know of one forecaster — we will leave out the name to avoid embarrassment — has been bearish for the past 14 years. Generally, markets peak when the economy is surging, valuations are very high and investors are “euphoric.” We don’t like predictions, but we think it is pretty safe to say those conditions are not present right now in the market.