Bear market predictions are exciting, but don’t believe all you hear.

October 3, 2017

Commentators on CNBC and uber bearish websites (you know who they are) have criticised the US market rally for being too thin, too focussed on the big name tech stocks. Bearish stories get all the attention, yet the market continues to grind higher week after week. Here’s a good one from David Stockman, who believes we are headed for a 40-70% plunge. If you believed all that you read about the market being done you’d have missed out on one of the biggest bull markets in history.

Ignore the media and do your own research.

It’s easy to get caught up in the web that the media can spin, especially if you’re new to trading or investing. Bear stories are always the most popular and get the most attention…that’s why people write them. It’s much more controversial (and interesting) to say “we’ve hit a market top and it’s correcting 10% in October” than just repeating the same old grind up that we’ve seen all year. Shorts have been CRUSHED this year, buying the dip has been a winning strategy for years now and unless something fundamental changes in the market it will continue to be so. Don’t fight the wave, ride it.

This is why you need to do your own research. A lesson can be learned from the analyst quoted below. When you see that the market is rallying, look at it in context. When you hear that a correction is coming because Apple is down 2%, think about the importance of Apple to the US (or world) economy. Always be aware that the financial media is there to entertain and get ratings. That’s their job. It’s up to you to inform yourself on what’s really happening out there.

Some comments on market strength from Morgan Stanley.

Morgan Stanley’s chief US equity analyst Michael Wilson thinks that we shouldn’t be worried, and that the rally is far broader than it’s given credit for. Here’s some quotes from a recent note to clients:

On tech weakness:  It seems to “to create an outsized amount of worry among investors with whom we speak” and it’s “probably the sector that has caused the greatest degree of worry about the sustainability of the overall equity rally we have seen since the February 2016 lows as investors have a misperception that it has been almost only tech driving market returns.”

On market breadth: It “is actually much stronger than investors appreciate, which is another reason to embrace the equity market rally”

On tech’s importance: “At [around] 23% of the S&P 500 SPX, +0.39% tech is a very diverse sector that includes a mix of growth and value, small and large caps, and cyclical and defensive stocks”

On the business cycle: “The secular growers in the sector can likely continue to execute on their growth plans while more cyclically oriented segments can also benefit as beneficiaries of strong confidence and business investment.”