The Bullish & Bearish Market Case

We dig into the bullish and bearish case for the market as we head into the end of the year. Currently, investors face a conundrum between year-end seasonality and the Fed starting to taper its bond-buying program. Such was evident in a recent email I received from a reader:

“I am holding a lot of cash, and am worried about a deeper correction. While I understand that you recently got more aggressively allocated due to improving short-term technicals, the risk of the Fed beginning to taper their bond-buying seems to be problematic. What do you think I should do?”

It’s a great question, and one that I think represents many of our readers.

One of the biggest challenges investors always face is allocating capital to markets once a correction has occurred. The concern is purely emotional as investors worry the market may continue to decline. While specific reasons suggest a deeper correction is possible, other factors are supporting a more positive outcome.

In the longer term, it is only fundamentals that matter. So what is happening between the economic and earnings data is all you need to know if you are a long-term investor.

Unfortunately, you aren’t.

Despite all of the protestations that you are a long-term investor, most are not. The emotional biases of being either bullish or bearish, primarily driven by the media, keep you from truly focusing on long-term outcomes. Instead, you either worry about the next downturn or are concerned you are missing the rally. Therefore, you wind up making short-term decisions that negate long-term views.

Understanding this is the case, let’s look at the markets from both a bullish and bearish perspective. From there you can decide what to do next.