For a time we felt quite lonely in our bullish market position.
For nearly a year we’ve trumpeted the idea that Australian stocks could hit 7,000 points in 2015.
But 2015 still seems so far away. So a few weeks ago we gave you another target: that the Australian index would hit 6,000 points by early next year.
So far things are going to plan.
But now we’ve got some company in our once-lonely bullish position…
The thing about being a contrarian investor is that we’re often a lone or minority voice when it comes to picking an investment trend.
When most folks hoot and holler about a raging bull market, we don’t mind tagging along, but we also play with a cautious hand.
And when others run scared, fearing the worst, screaming that the market is crashing, we take note…and then start hunting around for cheap stock opportunities.
That’s when we hoot and holler to buy stocks.
It’s also why we’ve backed stocks for the past 18 months and why we’ve picked the market to keep going higher.
But as we say, others are now starting to follow our lead.
Another Year of Big Gains for Australian Stocks?
According to CNBC:
‘The case for a continued bull market in stocks appears stronger than many would believe, Piper Jaffray Senior Technical Strategist Craig Johnson said Wednesday.
‘Setbacks that would’ve normally sent equities lower, including the Washington, D.C., budget battle and rising interest rates…had seemingly little lasting effect on the market, he said. “When stocks rise in the face of bad news, that’s very bullish.”
‘On CNBC’s “Fast Money,” Johnson said that the S&P 500 could easily close out the year at 1,800 and hit 2,000 in 2014.‘
The US S&P 500 closed this morning at 1,752. So a rise to 1,800 by the end of the year would mean a 2.7% rise. That’s not out of the question.
If the S&P 500 index hits 2,000 points next year, that would mean a 14.2% gain from here. That’s not out of the question either.
But it’s small-fry compared to the gains in store for the Australian market. In order for the Aussie market to get to 6,000 points it will need to jump 11.6% in about three months.
In order for the Australian market to hit 7,000 points it will need to soar 30.3% in just over a year.
Now, that may seem like a tall order. And we’ll agree that it’s not a normal state of affairs for a stock index to go up 30% in a year. But it can happen. And it has happened.
In fact the most recent year where stocks piled on a 30% gain was in 2009 as the market recovered from the 2008 bust.
In a bull market, stock gains of 15-20% are more common. Australian stocks gained 20% in 2004, 18% in 2005, 19% in 2006, and they were up another 19% by October 2007 as the market hit the peak.
But if you think those gains are a distant memory, think again. Despite the negative view many have of stocks, if the market carries on in the current fashion for the rest of the year, it will be the second straight year of strong stock gains.
Prepare for the Year-End Rally
Maybe it’s just us, but we get the feeling that a lot of people have forgotten just how much money they can make in stocks.
Think about it, what has all the talk been about in recent weeks? That’s right, property. Pick up a paper or scan the finance websites and the news is all about rising house prices and the beginning of a new housing bubble.
We’re even hearing talk about the wealth effect of Australian housing again. That’s where people feel better about themselves and wealthier as the value of their home goes up.
But lost in the chatter is an important point. During 2012 the Australian stock market went up 14.6%. That’s a pretty good return by anyone’s standards. And it’s a better return than anything you could have got from the housing market.
If you consider that gain came during a period of extreme economic uncertainty, we’d go as far to say it’s a great performance.
As for this year, again, as the uncertainty continued, the Australian market has so far gained another 14%…and there’s still more than two months of the year to go.
Some folks may say it’s ambitious to think the market could gain 11.6% from here to reach 6,000 points. But you know what? The November through January period is often a good time for stock investing.
Since 1984 the average return on the 1 November to 31 January period is 2.2%. Annualised, that’s equivalent to an 8.8% gain.
And based on everything we know today, there’s no way we’d bet against the market rallying hard from here.
Late Investors Playing Catch-Up
But as we said at the top of this article, we’re no longer a lone voice when it comes to forecasting a stock rally.
Remember, almost every analyst on the face of the Earth figured the US Federal Reserve would start cutting back on its money printing program this month.
They figured that if the Fed did so it would lead to rising interest rates and a falling stock market. We knew such thoughts were bunkum…and we told you so.
That’s why we told you to keep holding stocks and to buy more.
We’re glad we did. It’s now obvious the Fed won’t do anything, probably until mid next year at the earliest (we doubt even that). A lot of investors and analysts who wish they had bought into the market earlier will soon realise their mistake.
Knowing that the end of the year is usually a good time for stocks, you could see a stock surge as analysts and investors try to catch up on lost ground. Whether that means an 11.6% gain over the next three months and 30% next year…we’ll have to wait and see.
But either way, it makes sense to position your portfolio to benefit from this possible stock surge.
Cheers,
Kris+
From the Port Phillip Publishing Library
Special Report: UNAVOIDABLE: Australia’s First Recession in 22 Years
