The rally on the North American markets continues, and many have taken to calling it the next bull market. Those who have not come to grips with this magnificent run have been left behind by those that had the vision and appropriate strategy to hop on the bandwagon early and enjoy the ride. How long can this run last? The bears contend that we are in the midst of a drawn-out bear market, and that if the market were to fall in the fall, run for cover. The bulls contend that even if there is a pullback in the markets in the next few months, it should be used as a buying opportunity to pick up some quality investments on the cheap.
Many sophisticated investors are waiting for such a pullback. Some will use it to enter the market and some will use it as part of their exit strategy. September and October historically are the worst months of the year for investor returns, so if there were to be a pullback, that should be the time frame to keep in mind.
In the next couple of weeks, the second quarter earnings season will come to an end, and what a great quarter it was. More than 70 per cent of companies in the U.S. surpassed what was expected of them, such success was one of the main driving forces behind the current rally. If you then add the fact that GDP was only down one per cent in the U.S. for the quarter, a housing market showing signs of not just bottoming but improving rapidly, and for the first time in many months. a reduction in the unemployment numbers, you get a stock market that is firing on all cylinders.
The U.S. is the largest buyer of Canadian goods. Therefore, when their economy is getting better, it has a positive effect on ours and our financial markets will reflect this.
My concern at this time is when earnings season comes to an end and expectations grow for next quarter, which could cause the market to pause for thought and fall from today’s levels. Investors are starting to hear loud whispers of a market destined to fall in the coming few months amid fears that North American markets have gotten a little ahead of themselves with this historic run-up. If I am correct and the markets do show some signs of weakness, I think it will be temporary. The financial market may need to catch its breath before rising again. I think the fourth quarter of this year will prove to be the first quarter of positive growth in both Canada and in the U.S. A positive GDP number will be the catalyst to get investors into the kind of buying mood that will take the North American indexes higher at the end of the year.
September and October may offer investors that missed this amazing run to join in. We know that there is still a lot of money on the sidelines that is waiting to enter the market. If you are an investor that has money sitting in a savings account or in money market funds, it is time to put some of that money to work. Wait for buying opportunities that will come up in the next few months to add to existing positions or to take on new investments. This may be the last time investors have to ride the wave higher as I believe November, December and January will be great months. For those that have been heavily invested over the last few months, you may want to take some profits off the table to wait for the upcoming dip to buy back in.
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Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities or Metro Canada.