Mark Hulbert, writing for the Wall Street Journal, explored what asset classes performed the best during a bear market. He found that, “Almost every stock-market sector has suffered in each of the bear markets of the past 90 years. This is the case even for categories that are widely believed to provide downside protection, such as international stocks, those of companies with the largest market capitalizations and so-called value stocks—those trading for low prices relative to their book values”. See the chart below. Armed with that knowledge, Hulbert suggests that one way of protecting your assets would be to allocate some of your portfolio to intermediate term Treasury bonds because research shows that they are, “the asset class that has performed most consistently during bear markets… According to Morningstar data, intermediate-term Treasurys gained as a group during all but one of the 28 bear markets since 1929, and in the one bear market where they didn’t they still lost less than 1%”.
While there may be some investors who choose to avoid bonds “out of fear that bond prices will drop as interest rates rise from their current levels near record lows”, Hulbert suggests that fear may be mitigated by “the tendency of many investors to load up on Treasurys as a safe harbor when things look particularly grim on Wall Street, which lends support to the bonds’ prices.” He also notes that “interest rates rose in half of the bear markets since 1929, and this still didn’t prevent intermediate-term bonds from consistently producing a profit.”
Another option to protect your assets is to shift some of your investments into commodities, however their returns have been found to be “far less consistent than bonds.” As Hulbert points out, “During U.S. stock bear markets of the past three decades, for example, the S&P GSCI Index, a commodity benchmark, has fallen just as often as it has risen.”
Mark Hulbert of MarketWatch tapped two long term market veterans – Sam Eisenstadt, former research director at Value Line and Norman Fosback, former president of the Institute for Econometric Research – for their thoughts and insights on today’s market. The two, who combined have over twelve decades of stock market investing experience, both believe investors should be buying stocks now vs. increasing cash positions.
Eisenstadt uses an “econometric model he has been perfecting for decades.” According to Eisenstadt, his model has “an R-squared of 0.33 for his model’s forecasts since the early 1950s, which means that it has been able to explain 33% of the variation in six-month changes in the S&P 500.” Hulbert points out that few models achieve such a high R-squared statistic.
Fosback uses valuation metrics to assess the market’s attractiveness and the most recent decline in stocks has made the market veteran more bullish. He says that that when markets are trending into overvalued territory, there will always be reasons for price corrections, and if it wasn’t China it would have been something else that would have precipitated the most recent decline.
Hulbert notes that those who have seen past bear markets and are long time market participants like Eisenstadt and Fosback are less likely to panic when compared to. investors who have never seen a bear market (i.e. younger investors). This long-term perspective is something younger investors should keep in mind when investing in stocks.
Market timers have been notoriously wrong over time and their current positioning could indicate that the recent bull market isn’t over yet, according to Mark Hulbert of Marketwatch. Hulbert’s Nasdaq Newsletter Sentiment Index tracks the positioning of market timers he follows who focus on the NASDAQ. At the end of last week it reached an extreme low level of below -50%, indicating that the market timers he follows are over 50% short the market. Given that this has been a contrary indicator, the negative sentiment actually may bode well for stocks. According to Hulbert “The HNNSI’s current level is the lowest it’s been in five years. If this were a major market top that adhered to the typical sentiment pattern, the HNNSI would have remained at a high level in the face of the market’s recent correction.” Hulbert notes that this index focuses on short-term market timers and as a result, it can fluctuate significantly, but it hits its low last Wednesday and has remained low, indicating that timers have not used this correction as a buying opportunity, and that fact may actually be a positive indicator for the market going forward.
As summer closes in, many advisers will start claiming that the “summer rally” will be coming with it, says MarketWatch’s Mark Hulbert. But, Hulbert says, don’t listen to them.
Small stocks have lagged their larger peers over the past decade. But does that mean the “small-firm effect” is dead? Not exactly, says Mark Hulbert in a recent Barron’s column.
Many investors are fearing that the recent tumble in oil prices is a sign of bad things to come for stocks. But Mark Hulbert says sentiment levels indicate that the bull market isn’t done.
Investors often pay lots of attention to who a company’s CEOs is, or should be. But MarketWatch’s Mark Hulbert says they are probably wasting their time.
“In fact, according to Rakesh Khurana, a professor of leadership development at Harvard Business School, a corporation’s internal culture ‘exerts a far greater longer-term influence on the company’s success’ than a CEO,” Hulbert writes. “’Large-scale statistical studies have failed to find any direct causal link between CEOs and firm performance,’ he told me.”
Hulbert says that culture is difficult to quantify. “But one academic study found that a good measure of corporate culture is responsiveness to shareholder concerns — as measured by the presence or absence of governance structures that enable or prevent shareholders to effect change,” he writes. “That study, by Andrew Metrick of Yale University, Paul Gompers of Harvard University and Joy Ishii of Stanford University, found that the shares of companies that were most responsive to shareholders gained an average of 8.5% more per year than companies that were the least responsive.”
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