Today (19th October 2017) is the thirtieth anniversary of “Black Monday” – the day on which the Dow Jones industrial index fell 23% in a single day – its single largest one-day fall in history. This massive fall dwarfed even the previous Black Monday which was 28th October 1929 – which signaled the start of the Great Depression. On that day the Dow only fell by a measly 9%.
There was also a Black Monday on 24th August 2015 when the Dow fell by 6,6%. This was the fifth down-day of a six-day fall which saw the Dow fall by a total of 10,7%. These periodic events, occurring as they have late in October month, have made investors wary – and some will sell out of their positions completely every October just on the off-chance.
But this year, October month has been one of the strongest in history, The Dow and the S&P have been breaking new highs almost every day. The S&P is up 42 points (1,6%) so far this month. Clearly, the bull market is strong and apparently nowhere near its peak.
Investors like George Soros, who have been predicting the collapse of the stock market since the beginning of the year, are facing a dire situation. Soros took massive short positions on the S&P at the beginning of this year and, so convinced was he that he was right, he doubled up on those positions in March. His August filings still show that he had significant shorts on the S&P by then. Of course, one day he must be right. No market goes up forever. But our prediction is that this market still has a long, long way to go.
Obviously, as a market goes higher it becomes riskier. And the history of bull markets since World War II is that they only go on for a certain length of time (about five years) and then they collapse. Every bull market has behaved like this in living memory. And yet this bull market, which is now eight-and-a-half years old, shows no signs of topping out or even slowing down. On the contrary, it is accelerating.
Consider the chart:
The low point was Friday 6th March 2009 when the S&P reached an intra-day level of 666.79. Since then it has had two major corrections one in 2011 (the Greek/European crisis) and a second in 2016 (the green arrows). Recently, the upward trend has begun to accelerate moving strongly towards the upper channel line of the bull trend. This acceleration has been caused by the rapid increase in the profitability of S&P500 companies.
Most of the large companies in the US are beating analysts’ forecasts by a healthy margin every quarter and unemployment in that country is at record low levels. Janet Yellen (Governor of the Federal Reserve Bank) remains very cautious about doing anything to stop the economic recovery. Her adjustments can, at best, be described as cosmetic. That recovery is now steadily taking hold in the rest of the world – and most notably in Europe.
The bull market has also spread to the JSE, firstly through our international shares like Naspers, AB Inbev and BAT, but more recently in our local shares and in the increased number of new listings coming to our market.
In our view, this bull trend is far from over. We expect the next few years to be very good for private investors – despite the negative sentiment that abounds locally and the earnest efforts of the ruling party in this country to destroy the economy. We believe that the SA economy will be dragged inexorably into the vortex of world growth and that the stock market will go up with it.
Of course, no bull market can proceed without regular corrections. We have had two powerful corrections in this bull market so far and we should expect a third. Exactly when that will happen is not clear – only that it will happen. We believe that any such correction will prove to be a buying opportunity and not a new bear trend.