I have a confession to make…
I don’t know how the stock market will perform this year. I don’t know if stocks will finish up or down in 2017. I don’t know which commodities will rise and which ones will fall. No one does.
But I don’t need to make any bold forecasts to make money in the markets in 2017.
Neither do you.
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We’re skipping prediction season again this year. A cop out? Hardly. Consider this little act of kindness your late Christmas present…
But we’re apparently the only ones who haven’t carved the market’s 2017 performance in stone. After exhausting every “Dow 20,000” storyline in the universe, financial pundits and reporters have switched gears to hot New Year’s market calls.
The ‘net is now brimming with bold prognostications for stocks, bonds, commodities, and which celebrity is next in line to kick the bucket. Everyone from the big bank analysts to lowly bloggers is taking a stab at what the New Year will unleash on unsuspecting investors.
Yet no matter how much data they use to back up their claims, even the best predictions are nothing but empty guesses. And we don’t have to dig very deep to prove it…
Just one short year ago, stocks suffered their worst start in history. The major averages rang in 2016 with a thud. After the first week of trade, only about 25% of stocks in the S&P remained above their respective 200-day moving averages.
Market breadth was downright awful. Cracks appeared in several vulnerable sectors. Meanwhile, transports and small-caps were quickly entering bonafide bear markets.
The S&P approached the end of the first month of the year down a cool 10%. That was the worst start ever for the index.
It was all too easy to get caught up in the carnage. Prophesizing a major market meltdown in January 2016 wasn’t crazy talk. From the average investor to the smart-money portfolio manager, the world’s markets looked like they were ready to come crashing down.
Of course, we now know how these doomsday scenarios played out. After dropping double-digits to start the year, stocks came roaring back to life.
Ultimately, the long-term investors who panicked early last year were forced to watch stocks rip off their lows. The S&P 500 finished the year with 10% gain. But the hardest-hit groups were the real champions of 2016.
“Had you sold in January, you would have missed a 45 percent rise in small-cap stocks, a 36 percent gain in Japan, 25 percent gain in U.S. large-cap stocks, 31 percent gain in emerging markets, and a whopping 57 percent gain in energy-related stocks,” Barry Ritholtz reminds us as we kick off the new year. “Missing rallies of this nature can be devastating to the long-term performance of any portfolio.”
Those are some impressive numbers.
Did I see any of these incredible moves coming as despair set in during the first weeks of 2016?
But that didn’t stop us from successfully playing these trends as they started to unfold. Stocks popping off their lows and gold getting jiggy last winter were pleasant surprises that helped contribute to some of our biggest gains of the year.
The best part? We didn’t predict any of ‘em.
I don’t know what’s in store for us in 2017. No one does. But I do know we’ll be able to book gains by shutting out the noise and following the market’s most powerful trends.
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