Has The Stock Market Bottomed?
By Eliseo "Jojo" Prisno, CRPC, MS
Chartered Retirement Planning Counselor
PE CAPITAL INVESTMENTS
I'd like to share these numbers to stock investors so we know what the current score is. When investors panicked last February and abandoned their stock portfolio, I advised my clients to stay put and not “realize losses” because my basis is very simple: the US economy is in a good bill of health compared to 2008/2009. The last major correction was based on a systemic failure (auction market) due to overleveraging of mortgages. That was a major financial failure. 2015 is nothing like that, the correction was simply rooted on the collapse of the oil sector which many believe already bottomed and the doomsday perspective of the China growth. The reaction in January and February was an overkill. Those that don't understand the market got caught and I’m sure will have difficulty recovering if they sold out. Those that stayed put are now nursing for their recovery. The chart below are the numbers on NASDQ, take note, the most growth oriented index and the most dented in the recent correction:
Feb. 23 was when some investors liquidated and took flight to safety, which was perfect timing because they had a 5.5% recovery from Feb. 9, when the market bottomed. These investors thought that the February rebound was a “dead cat” bounce; thus, they bailed out. However, technically they were still 12% behind. What they missed out since Feb. 23 to the day of my writing this article (a three week span) is about 6 %, which could have tapered the losses to half.
I believe by end April NASDQ will go back to 5,000 which could potentially make all investors whole again. And most analysts are saying that NASDQ will end 5,500. This is potentially a 16.6 % growth from this day of my writing, which could gain most portfolios by 8% for 2016 (despite the very volatile start of the first two months). The reason I say this is because of what I saw in 2009, despite 2008 having a -37% dent, 2009 was a 26% recovery. Note that our dent on 2015 was a mere -3% and our economy today is not so bad compared to 2009. That was the reason I wrote the article “Remember 2009” for my clients not to panic last February. Because panicking will result in “realized” losses through liquidation. And worse, they will go to another instrument that’s so conservative and can only deliver an average of 4% growth per year. This is a classic mistake for investors who panic. To nurse this, realized loss would take easily four years to recover. If they stayed put, they can still potentially gain this year. Remember in 2008, those that stayed put were made whole by 2011 (back to their highest value in 2007), a mere three years despite the big losses.
If you made this classic mistake you still have time to correct it. Go back to the drawing board and re-establish a stock portfolio designed for recovery, meaning it has to be growth oriented to carry the market momentum. If you don’t reconsider
re-establishing a stock portfolio you will be left out in the market and not recover from losses.
The next 7 years will be growth years before the next correction will come in again. Note that the previous correction was 2008, before that was 2000. Between 2000 and 2008, most people doubled their money then lost 37% creating a net of 67% growth, but between 2008 and 2014 was a tremendous growth of 250% or 2.5 times the value from 2008’s bottom. I can almost guaranty, the next 7 years will easily double the assets.
Why do I say this: China is slowing down and the money flow is coming back to the US because China is redefining its economy. If emerging markets are slowing down, the default placement is the US, Japan or Europe. Of course between Europe and Japan, the US is a far better alternative because our economy is in a far better shape. Layer this with a weakened US currency, then the more reason for this inflow to come in.
The reason why I was confident of the rebound was as I was closely monitoring the futures market, and despite the drastic downward correction, the futures did not collapse unlike in 2008. As of today, the futures market is very vibrant and bullish. For example, the likelihood of Apple hitting $145 per share before January 2017 is almost at 90% certainty. As of this writing Apple is at $106/share, down from its peak of $130/share. This forward selling contract pegs a high premium (if you are working on covered calls) indicative of bullishness.
If you’re interested in investing in equities or stocks, work with a financial professional licensed to offer this investing service.
ABOUT THE WRITER: Eliseo Jojo Prisno is a Chartered Retirement Planning Counselor (CRPC).He founded P/E Capital Investments in 2010, a State Registered Investment Advisory Firm (CRD# 172695) and is currently the firm’s Managing Director and Senior Investment Advisor. Mr. Prisno also manages a Fund of Funds investment program with Ameritas and runs an All-Equity Growth and Income customized portfolios in separate accounts via E*Trade Securities. If you have questions email j.prisno@PEcapitalinvestments.com or call 1-888-929-2825. Visit our website www.PEcapitalinvestments.com