By Michael Brush
Nothing like a little October turbulence to help the market’s weak hands get in touch with their inner bears.
But don’t let their negativity rub off on you. We’re still near the beginning of what will be a multiyear bull market. Here are six reasons to buy stocks now, and six names to consider in one of the best sectors to own at the moment.
1. Sentiment has gotten bearish enough
I regularly track investor sentiment in my stock letter (details and link in bio below) to make contrarian “calls” on the market. While most of your money should be in long-term holdings, timing entries when most people are bearish gives you an edge. That is the case now. Sentiment is not extremely negative, but it fell enough this week to trigger a buy signal in my system.
It’s also worth pointing out that major media figures turned pretty negative this week, another good contrarian signal. (I won’t name names.) And the fact that their negativity is a bullish signal in my book doesn’t mean I think they are dense. It’s just that high-profile media commentators are consensus sponges. It’s an occupational hazard – which we can use to our advantage as investors.
Pick your favorite popular financial media talking heads, then do the opposite whenever they turn consistently negative — or positive.
2. Seasonality is in our favor
The worst month for stocks is October, and the weakest days are Oct. 10 and Oct. 11. Then this bleak month is followed by the seasonally strong January-May phase when the market is bolstered by new money coming in. In between, November and December can be strong as stocks rebound from October weakness and the end of the mutual-fund tax-loss selling season. That’s finished at the end of October.
3. COVID is rolling over
It’s no secret that case counts and hospitalizations are down sharply. Last year, the cold weather did not usher in a winter COVID flu season. So, it’s not too crazy to expect the same thing this year, especially given all the people who have been vaccinated or infected. Reopening will help boost the economy.
4. A correction may have already happened
Since the summer, the market has experienced rolling corrections in various sectors. The Russell 2000 /zigman2/quotes/210598147/delayed RUT 0.00% was down over 10% in August, the definition of a correction. Cyclicals, retail, tech and so forth have all been hit. As of early October, 90% or more of S&P 500 /zigman2/quotes/210599714/realtime SPX +0.08% and Nasdaq /zigman2/quotes/210598365/realtime COMP +0.59% stocks had fallen at least 10% from 2021 highs, notes Liz Ann Sonders, chief investment strategist at Charles Schwab /zigman2/quotes/201281754/composite SCHW +2.30% .
In other words, while everyone was looking for a correction, it may have already happened. The market has a funny way of tricking most people most of the time, this way.
5. There’s been strong household formation
Millennials are finally giving up on the parents’ basement – if there was ever any truth to that cliché.
What is true: They’re entering the prime age for marriage and family. Plus, the economy is booming so they feel confident enough to make the plunge into homeownership.
The upshot: Household formation is now at about two million per year, more than double the rate for the past five years. Home buyers have to purchase a lot of stuff to fill up those new houses. That’s a built-in economy booster.