Are You Still Bullish about 4Q14?
When we published our 2014 Market Outlook in January of this year, we identified that we were still bullish and overweight stocks coming off of the nice rise in equities in 2013. We also said we had some strong evidence indicating the higher probability of a pullback of 10% to 20% in the fall but that numerous indicators lined up for a likely strong 4Q14. The analysis behind our commentary has helped us greatly thus far in 2014.
It may sound like we have a crystal ball or believe in predicting but we don’t. The very scientific approach we use is to overlay the long-term one year seasonal cycle with the four year presidential cycle and the ten year business cycle and then rigorously compare actual market movements to this composite. Yes, it’s like a Farmers Almanac approach to investing, but it is only one data point out of many we use to assess and make decisions about being overweight, neutral or underweight a certain asset class.
So, yes, we are now in a very bullish stretch of the seasonal/presidential/business pattern cycles and our technical analysis inputs are confirming patterns seen near the start of major move ups. In recent investment review sessions with clients, our Chief Investment Officer Jim Callahan, CFA has been giving clients a peek at research he has related to our 2015 outlook.
In short, this also supports our overweight equity tactical position. This all said, if we saw a sudden deterioration and re-test of lows for the year, we would take it as a serious warning and potential move from an offensive tactical shift to defensive. With no sign of this yet, we remain bullish on equities. Stay tuned.