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Just one cautionary: we are into the 6 th year of the bull market (possibly the 8 th innings of a 9 innings bull
market, to compare it to a baseball game), so one needs to bear that in mind. One would therefore be more
cautious than if we were only in the 2 nd or 3 rd innings of the bull market.
One or two market-letter writers have pointed out the statistics relating to the 3 rd year of a US Presidential
cycle, which started for President Obama on 1 st October. The 3 rd year has since the 1930’s so far has never
produced a negative stock market total return in the US (including dividends) and in fact has produced
returns way higher than years one, two and four.
Hopefully that statistic continues to play out. Usually most of the returns occur between October and April.
Of course, one cannot rely on this happening (3 rd year doing so well), but it is an interesting factor that does
encourage the bulls among us; and why not?
Credit Suisse’s latest Global Equity Strategy, written by Andrew Garthwaite, notes that US director buying of
their company shares has recently been strong, which is positive and net speculative positions on the S&P
500 Index in the US are close to a three year low, which is also a good sign for equities being close to the
bottom.
Meanwhile ongoing excess liquidity remains good for equities.
How about Bonds and SA Listed Property?
As is fairly customary during a stock market correction, bonds improve as yields decline and prices rise.
Investors sell out of the riskier equities and buy bonds. This time investors are emboldened to buy bonds on
the back of news of weak growth in many regions, along with lower inflation, a typically good combination
for bonds.
Offshore bond yields have fallen quite sharply, with the US 10-year yield down from 2.49% at end September
to 2.28% today, driving prices and values higher. This is the lowest yield/highest price since the “taper
tantrum” in June 2013.
Offshore property shares have turned upwards by 2.5% after their sharp 6.8% correction and are now down
about 4.7%.
Our All Bond Index here in SA is up 1.5% in October (yields down) and is up 7.3% so far in 2014. This is
positive for SA Listed Property, which is still showing a total return in 2014 of around 13.5%.
Other Commentators
US MARKET ANALYST ELAINE GARZARELLI
Recent US Fed (central bank) minutes reassured that policy is data-dependent and there is no immediate
intention to tighten.
Members of the Fed were concerned about the effect that weak global growth and the stronger dollar could
have on slowing the US economy.
Garza’s quants system reading declined to 62.5% from 66% last week, due to the downgrade to neutral of the
ECRI leading indicator. This indicator shows potential changes in the economic cycle.
Corrections of 4 to 7% are normal during bull markets. Garza’s system still indicates a fair value for the S&P
500 Index some 24% higher than current levels.
Her sentiment indicator (bullishness of US investment advisors) declined to 45.5%, but is only neutral, not yet
bullish for the market (contrarian indicator).
She likes the US economy, with only housing restrained due to slow household formation, but expects it to
stabilise over the next year.