With stocks looking boring, many investors are selling for alternative investments. This is almost certainly a mistake.
The Dow hasn't done much this year, meandering up and down and delivering a low single-digit return year-to-date.
Stocks look boring to investors. So many are selling stocks for alternative investments.
This is almost certainly making a mistake.
Yes, in the first half of this year the market has been about as exciting as a decades-old Lawrence Welk rerun. Even the CBOE Volatility Index (VIX)—the most widely watched gauge of investor fear and greed—has approached a record low.
That's partly because, historically, summer is a lackluster period for stocks. People are working on their tans rather than 10-baggers. Volume dries up—and so does volatility.
The bull is still running
Yet there are several factors that support a continued bull market: low inflation, zero-percent interest rates, quantitative easing, an improving world economy, flush corporate balance sheets, the US energy renaissance (thanks to new technologies like fracking and horizontal drilling) and record corporate profits.
Yes, the market can correct at any time without warning. That's just one of the hazards of the game. But a boring market is no reason to flee stocks. As the old Wall Street saw tells us, "Never sell a dull market short."
Especially this one. The S&P 500 tacked on 30% last year, after rising the previous 4 years as well. It's not unusual for the market to take time to digest those gains. As money churns around, old investors cash out and new ones come in. This is normal and natural. (But not terribly entertaining to watch.)
In truth, the great bane of investors is not dull markets but volatile ones. For instance, the financial crisis a few years ago gave folks plenty to talk about, but it also blew a hole in many retirement plans.
Or take the stock market crash of 1987, a day when stocks suddenly plunged 22.6% … on no news. Recall that nobody got shot that day. No currency collapsed. No government failed. Yet stocks gapped down at the opening and didn't stop falling until they had lost nearly a quarter of their value.
The only advance indication that something like this might be coming—aside from the forecasts of the usual gloom-and-doomers, a crowd who had been bearish for years and has remained so ever since—was extreme daily volatility, with stocks soaring one day before tanking the next.
Trust me: I'll take a dull market like this one over that kind of market any day of the week.
Especially since there are plenty of opportunities within this sluggish market. There have been big winners this year, for example, in healthcare, transports, basic materials, consumer discretionaries, and energy.
So don't lament the dull market action. Celebrate it. It is a healthy sign. Investors are still finding reasons to invest despite high unemployment, a lackluster economy, and a near-total leadership vacuum in Washington.
So don't sell this dull market. With cash and bonds paying next to nothing, gold in a funk and real estate as illiquid as ever, there are precious few good alternative investments.
Almost by default, equities remain the best game in town.
The information contained in this article should not be construed as investment advice or as a solicitation to buy or sell any stock. Nothing published by Physician’s Money Digest should be considered personalized investment advice. Physician’s Money Digest, its writers and editors, and Intellisphere LLC and its employees are not responsible for errors and/or omissions.