Australian Investment Blog

Good morning everyone Overview Market Matters are a market leading advisory service, to subscribe to their free newsletter click here Today's report is covering a theme we have discussed over recent weeks BUT because we believe it's so important to be clear on our view for 2016 we feel compelled to clarify it in simple terms. US equities have rallied strongly for a 4th straight day and suddenly they are 6.6% above their lows and less than 10% below their all-time highs! Market Matters has been pushing against the crowd over recent weeks calling a fresh all-time high for US stocks in 2016, admittedly a view that, at times has been hard to reconcile. We can assure you that this report is certainly not focussed on how well we have called it (so far) but, of course, we are glad not to have panicked and dumped all our stocks 5-6% lower; and more importantly, let’s prepare for the unfolding volatile path ahead. Turning to the Markets If you stand back and simply look at the two long-term charts for the S&P500 shown below and without knowing what they represented, most investors would say it's just been a healthy correction similar to 2009. However, we have all felt the "Gut Wrenching" volatility since the start of 2016 and the press has bombarded us with negative stories from China to credit spreads blowing out - doom and gloom sells papers. Market Matters believes that some of the news that has hit markets over recent weeks may come to fruition over time and help our medium-term view for equities become reality. Medium-term, after a move to fresh all-time highs in the S&P500 we are predicting an unpleasant correction to the whole advance from 667, the 2009 low, this correction is likely to be ~40% targeting ~1550 in the S&P500 = yuk! Market Matters still believes the January statistic will be accurate ("when January is down, US stocks have fallen 72% of the time") but how the market trades in the middle of the year has no change to this outcome. We have recently increased our equity holdings to over 95% after recent short-term forays into the resources sector in BHP, FMG and RIO, at current levels we are now wearing our "Neutral Hat". Considering our medium term outlook for equities it should come as no surprise to anybody that we are looking to steadily reduce our exposure into strength with some sell levels outlined in recent reports.
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